Steel consortium undecided on size of Afghan iron ore investment

By Krishna N Das

NEW DELHI (Reuters) - A consortium led by the Steel Authority of India (SAIL) (SAIL.NS) has yet to decide how much it will commit to an iron ore project in Afghanistan that was originally supposed to be a $10.8 billion investment, SAIL's chairman said on Monday.

The steel ministry said in December that the group had proposed new terms and planned to invest about $2 billion in three iron ore mines and a steel plant.

But SAIL Chairman C.S. Verma said the consortium had not signed a final deal and total investments could only be decided after having a detailed project report.

"Conditions are quite difficult," he said, referring to security problems and a lack of infrastructure in the area. "We are keeping all our options open."

"Only time will tell how we are able to take up this proposal," he said after announcing SAIL's April-June quarter results.

The consortium also includes Indian companies such as NMDC (NMDC.NS), Rashtriya Ispat Nigam, JSW Steel (JSTL.NS), Jindal Steel & Power (JNSP.NS) and Monnet Ispat & Energy (MNET.NS). As part of its investment, it could spend $75 million to $100 million on the initial exploration of the mines, Verma said.

The original proposal called for investment in three blocks at Hajigak in Afghanistan and in a 6 million-tonne-per-year (MTPA) steel plant. Under the new proposed terms, the size of the plant would fall to 1.2 MTPA, the steel ministry had said.

However, Verma said building a steel plant there was contingent upon Afghanistan providing the consortium with coal, dolomite and limestone needed to make the alloy.

"And then there has to be rail and road network also. All the enablers will have to be given by them," he said.

Abdul Jamil Hares, Afghanistan's deputy mines minister, said on Friday that his country would work with foreign partners to build a railway connecting the northern and southern parts of the country.

That network will then be connected with the mining areas, including Hajigak, he said on the sidelines of a mining conference in New Delhi.

The consortium won a bid in late 2011 to explore the three blocks with reserves of 1.28 billion tonnes of ore. It expects to produce 2.5 million tonnes of ore per year from those blocks.

The Hajigak deposit is located in mountainous Bamiyan, where Afghanistan's famous ancient Buddha statues once stood in the cliffs before their destruction by the Taliban.

The group is also open to transporting iron ore from Afghanistan to India, said Verma. His company is expanding its steel capacity by 34 percent to 23.46 million tonnes by next fiscal year ending March 31, 2016 - which would mean its need for raw materials like iron ore would surge.

But the shortest route to get iron from Afghanistan to India would be through Pakistan, with whom India has a frosty relationship.

Minister Hares said there could be other alternatives.

"Afghanistan is not just connected to Pakistan. We have Iran and other countries, OK?"

(Editing by Pravin Char)