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India Goes Straight to the Source

Billionaire Rajesh Mehta, India’s largest jewellery producer, wants a secure supply line from Australia’s gold mines direct to his retail operations.

Listed on the Bombay Stock Exchange with a market capitalization of nearly 60 billion rupees (US$962 million), Rajesh Exports Ltd already has vertical integration within the company and now seeks to add Australian mining to its refining, manufacturing, and retail stages already established in India.

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In addition to mining, Mr. Mehta would like a retail presence in Australia. “We would also like to invest in the retail jewellery sector in Australia—that is, take the gold from here, process it in India and then supply the jewellery back here in the retail line that we set up here,” he commented.

In a recent visit to Australia, Mr Mehta stated that his company planned to spend up to US$700 million to grow its presence in the country, with mines being the primary focus.

Historically, the only foreign investment into gold assets in Australia have come from North America and China, so if Mr. Mehta were to find success in purchasing any mining assets it would certainly be a welcome addition.

Although there have been some recent positive upswings in the sector, the Bangalore billionaire is certainly choosing an astute time to go shopping. The precious metals mining industry has been squeezed by a depressed market for almost five years. Financial assistance from banks has been thin, especially in early-stage development, and miners have had to rely on other means, such as private-equity vehicles and hedge funds, for financing.

Foreign control of Australian gold mines peaked close to 70% in the early 2000s, but is now down to approximately 50%. Barrick Gold and Newmont Mining have sold several Australian gold mines in the past 18 months to Australian Stock Exchange (ASX)-listed companies.

This interest from Mr. Mehta comes almost directly on the heels of last year’s visit by India Prime Minister Narendra Modi, whose visit there was to help move forward a free trade agreement between Australia and India.

After a difficult few years in the industry, this must be a bullish signal for the battered and bruised miners. Many analysts this year have predicted the sector is on the verge of a turnaround… is this the first sign of better times ahead?

H/T: Australian Financial Review