India Globalization Capital signs US$35 million iron ore supply deal
Materials and infrastructure company India Globalization Capital Inc
(NYSE Amex: IGC) said it signed an iron ore supply deal valued at
approximately US$35 million for an initial 12-month period with an
unspecified Chinese mining and smelting conglomerate.
There is a customer option that could extend the contract for 5 years for an additional renewal value of up to US$176 million.
Under the agreement, IGC will deliver up to 320,000 metric tons (MT) of 63.5 percent iron ore in the first twelve-month period. The iron ore will be supplied from mines in India and shipped out of the Visakhapatnam port, off the eastern coast of India and into Jintang Port, in northern China beginning in late Q3 or Q4.
Ram Mukunda, chief executive officer of India Globalization Capital, commented: "We are very pleased to follow up on our recently announced US$160 million, 5 year contract with this leading mining and smelting conglomerate in China which currently imports approximately 2.5 million MTs of iron ore per year.
With this contract, IGC now has a backlog of approximately US$200 million in its iron ore business, which it will begin to ship in Q3 or early Q4.
Typically, in long-term contracts the pricing is set over 12 months, however in this case the pricing is set on a per shipment basis, which is also consistent with recent industry trends of moving from annual pricing to quarterly or monthly pricing.
“The contract also stipulates that the customer pays for shipping separately, eliminating risk associated with fluctuating shipping prices. The pricing methodology reduces commodity price risk, shipping price risk and creates a profitable business model for us. We are exploring additional opportunities with new customers over the coming months," Mukunda added.
IGC operates mainly in India. It builds roads, bridges and highways, and provides materials to the infrastructure industry in India and China. The company has offices in Maryland, Mauritius, Nagpur, Cochin, Delhi, and Bangalore.
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