Vedanta Resources Plc has pulled out of the race to acquire Anglo-Australian mining giant Rio Tinto's Canadian iron-ore assets, The Wall Street Journal today reported, citing a person familiar with Vedanta's thinking.
Anil Agarwal-controlled Vedanta, which had shown interest in these assets in March, has backed off because the acquisition would add to the company's financial burden, the report said.
Vedanta has amassed debt of around $16.7 billion, mainly due to its $8.76-billion acquisition of a controlling stake in Cairn Energy's Indian subsidiary Cairn India in 2011.
In March, London-based Rio Tinto had hired investment banks Credit Suisse and Canadian Imperial Bank of Commerce to sell its 59.7-per cent stake in Iron Ore Company of Canada (IOC), Canada's largest iron-ore producer.
Other stakeholders in IOC are Japan's Mitsubishi Corp with 26.2 per cent and Labrador Iron Ore Royalty Income Corp with 15.1 per cent.
A sale could value IOC at $3 billion to $4 billion, putting the value of Rio Tinto's stake at over $1.8 billion.
Labrador Iron Ore Royalty also later announced that it will also sell its stake, but is yet to get any bids.
Several media reports had earlier speculated that apart from Vedanta, Aditya Birla Group, private equity firm Blackstone Group, commodities and mining giant Glencore Xstrata and Teck Resources Ltd, Canada's largest diversified mining company, were also in the race for IOC.
IOC is the largest manufacturer of iron ore pellets in Canada, with North America, European and Asian steel producers as it customers.
The company operates a mine, concentrator and a pellet plant in Labrador City, Newfoundland and Labrador, as well as port facilities located in Quebec. It also operates a 418km railroad that links the mine to the port.
IOC recently spent $800 million in expansion in order to increase annual iron-ore output capacity to 26 million tons, but even that is nowhere near the 353 million tons that Rio Tinto plans to extract annually from the Pilbara by mid-2015.
IOC contributed $230 million net profit to Rio Tinto in 2012, compared to $9.2 billion for the whole of its iron ore operations.
Rio Tinto's newly appointed CEO Sam Walsh had earlier said that he would sell non-core and under-performing assets to bolster the balance sheet of the company.
The company, which generates four-fifths of its earning from iron ore, may be selling IOC for its lower grade of ore, and focus on the higher grade ores at Pilbara in Australia and its under development Simandou iron ore mine in Guinea.