1. Business
Background of India Globalization Capital, Inc. (IGC)
IGC, a Maryland corporation, organized on April 29, 2005, as a blank check company formed for the purpose of acquiring one or more businesses with operations primarily in India through a merger, capital stock exchange, asset acquisition or other similar business combination or acquisition. On March 8, 2006, we completed an initial public offering of our Common Stock. On February 19, 2007, we incorporated India Globalization Capital, Mauritius, Limited (IGC-M), a wholly owned subsidiary, under the laws of Mauritius. On March 7, 2008, we consummated the acquisition of interests in two companies in India, Sricon Infrastructure Private Limited (“Sricon”) and Techni Bharathi Limited (“TBL”). Both companies are focused on the infrastructure industry. Currently, IGC owns 77% of TBL and 22% of Sricon. The shares of the two Indian companies, Sricon and TBL, are held by IGC-M.
On February 19, 2009, IGC-M beneficially purchased 100% of IGC Mining and Trading Private Limited (IGC-IMT) based in Chennai, India. IGC-IMT was formed on December 16, 2008, as a privately held start-up company engaged in the business of mining and trading. Its current activity is to operate shipping hubs and to export iron ore to China from India. On July 4, 2009, IGC-M beneficially purchased 100% of IGC Materials, Private Limited (IGC-MPL based in Nagpur, India), which conducts IGC’s quarrying business, and 100% of IGC Logistics, Private Limited (IGC-LPL) based in Nagpur, India, which is involved in the transport and delivery of ore, cement, aggregate and other materials. Each of IGC-IMT, IGC-MPL and IGC-LPL were formed by third parties at the behest of IGC-M to facilitate the creation of the subsidiaries. The purchase price paid for each of IGC-IMT, IGC-MPL and IGC-LPL was equal to the expenses incurred in incorporating the respective entities with no premium paid. India Globalization Capital, Inc. (”IGC,” the “Company,” or “we”) and its subsidiaries are engaged in the sale of materials, and in mining, quarrying, and construction.
On December 30, 2011, IGC acquired a 95% equity interest in Linxi Hefei Economic and Trade Co. aka Linxi H&F Economic and Trade Co., a People’s Republic of China based company (“PRC Ironman”) by acquiring 100% of the equity of H&F Ironman Limited, a Hong Kong company (“HK Ironman”). Unless it is necessary to specify which company in China we are referring to, PRC Ironman or HK Ironman, we will collectively refer to both as Ironman throughout this report. The registered capital of PRC Ironman is RMB 2,000,000, equaling to USD $273,800, in which Mr. Zhang Hua owned 80% and Mr. Xu Jianjun owned the remaining 20%. Mr. Zhang Hua and Mr. Xu Jiajun transferred 75% and 20% respectively to HK Ironman on January 18, 2011. Thus, as of March 31, 2011, HK Ironman held 95% of the Company’s registered capital.
IGC operates in India and China geographies specializing in the infrastructure sector. Operating as a fully integrated infrastructure company, IGC, through its subsidiaries, has expertise in mining and quarrying, road building, and the construction of high temperature plants. The Company’s medium term plans are to expand the number of iron ore mines it has in China and continue to build its iron ore assets. The business offerings of the Company include construction as well as a materials business. The Company’s core businesses are in mining, materials and construction.
IGC’s organizational structure is as follows:
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Unless the context requires otherwise, all references in this report to the “Company”, “IGC”, “IGC Inc.”, “we”, “our”, and “us” refer to India Globalization Capital, Inc., together with its wholly owned subsidiaries IGC-M and HK Ironman, Ltd. and its direct and indirect subsidiaries (TBL, IGC-IMT, IGC-MPL, IGC-LPL and PRC Ironman) and Sricon, in which we hold a non-controlling interest.
Subsidiaries Overview
IGC Materials, Private Limited (“IGC-MPL”) and IGC Logistics, Private Limited (“IGC-LPL”) are based in Nagpur, India and were incorporated in June 2009. The two companies focus on infrastructure materials like rock aggregate, bricks, concrete and other building materials, as well as, logistical support for the transportation of infrastructure materials. IGC India Mining and Trading (“IGC-IMT”) was incorporated in December 2008 in Chennai, India. IGC-IMT is focused on the export of iron ore to China as well as the sale of iron ore to customers in India. IGC-MPL, IGC-LPL and IGC-IMT are all wholly owned subsidiaries of IGC-M.
TBL was incorporated as a public limited company (but not listed on the stock exchange) on June 19, 1982, in Cochin, India. It was converted to a private limited company in 2012. TBL is an engineering and construction company engaged in the execution of civil construction, structural engineering projects, and trading. TBL has a focus in the Indian states of Kerala, Karnataka, and Tamil Nadu. Its present and past clients include various Indian government organizations.
HK Ironman is a Hong Kong-based company incorporated on December 20, 2010 to acquire PRC Ironman. PRC Ironman was incorporated as Linxi Hefei Economic & Trade Co., Ltd. in China on January 8, 2008. PRC Ironman is a Sino-foreign equity joint venture (“EJV”) established by both foreign and Chinese investors (i.e., Sino means “China” herein). HK Ironman owns 95% of PRC Ironman. PRC Ironman is engaged in the processing and extraction of iron ore from sand and dirt at its beneficiation plants in southwest Linxi in the autonomous region of eastern Inner Mongolia, under the administration of Chifeng City, Inner Mongolia, which is located 250 miles from Beijing, 185 miles from Tianjin Port and 125 miles from Jinzhou Port and well connected by roads, planes and railroad. PRC Ironman operates three beneficiation plants on three separate properties, all located in Linxi.
Our approach is to offer integrated solutions to our customers such as construction services combined with the sale and transportation of materials. However, in fiscal 2012 we focused more on building mining assets like iron ore mines and less on construction.
Company Overview
We are a materials and construction company offering a suite of services including: 1) the supply of iron ore to customers in China and India, 2) operations and supply of rock aggregate, and 3) the civil construction of roads and highways. Our present and past clients include various Indian government organizations and steel mills in China. Including our subsidiaries, we have approximately 105 employees and contractors. We are focused on building out mining assets including iron ore, rock aggregate, setting up customer relations, and export hubs for the export of materials to China.
Our business model is as follows:
1. We beneficiate and supply iron ore to customers in China and trade in ore in the Indian markets.
2.
We supply rock aggregate to the construction industry in India and trade in other construction materials in the Indian markets, and
3.
We bid and execute construction and engineering contracts.
Our expansion plans include building on our current iron ore assets. This includes obtaining licenses for the mining of iron ore in India and acquiring other mines and beneficiation plants, as well as winning and executing construction contracts.
Prices of ore have moved from a high of $180 per ton at the end of 2010 to about $110 per ton at the end of 2011 and appear to be moving back up to the $125-$140 per ton range. Mainstream prices of 63.5% Fe Indian fines stood at $137-138 per ton in China on Friday June 15, 2012. We now operate three beneficiation plants in China through our subsidiary Ironman. We extract and process high-grade iron ore from the sand located in the hills of Inner Mongolia. In addition, we recently acquired a new property of mining land. At $137 per ton, our total estimated reserves of high-grade iron ore on four properties are about $593 million.
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Ironman’s plants extract iron ore from the sand by using two processes. The first process is a dry separation process. Trucks of sand are poured into a separator that employs magnets. The magnets separate the sand from the iron ore. In one day, Ironman may process as much as 30,000 tons of sand through the dry separators. The second process is a wet process, which involves mixing the processed sand and ore with water and then using magnets to separate the ore from the slurry. About 70 trucks of sand are ultimately beneficiated into one truck of high-grade 66% iron ore. The entire process is continuous and runs during daylight. The sand that is separated from the ore is redistributed to the hills. The water is filtered and reused up to three times before pumping it to grass, plants and shrubs that are planted in the hills to create a sustainable environment. Ironman maintains an English language web site at www.hfironman.net.
Industry Overview
The 2011 CIA World Fact book estimated the Indian GDP to be approximately $1.43 trillion in 2010: “In 2010, the Indian economy rebounded robustly from the global financial crisis - in large part because of strong domestic demand - and growth exceeded 8% year-on-year in real terms.” According to the 2012 CIA World Factbook, the estimated Indian GDP for 2011 was $1.843 trillion. However, the Financial Times noted that economic growth for the quarter to the end of September 2011 slowed to an annualized 6.9 percent making the official target for economic growth in the 2012 fiscal year of 8.5 per cent out of reach. Some analysts are encouraged by the Congress party-led government’s efforts to unleash economic reforms in the face of slackening growth, but believe that fiscal year 2011-2012 will now be nearer 7 percent.
This slowdown in the economy is not exclusive to India, since factors like inflation and higher interest rates are impacting most emerging markets. The Economic Survey for 2011-12 in India pegged inflation at 6.5-7 per cent by end of March 2012 and projected a further moderation in the next fiscal. The Survey also noted that the outlook for growth and stability is promising with real GDP growth expected to pick up to 7.6 per cent in 2012-13 and 8.6 per cent in 2013-14. India's medium-term growth outlook is positive due to favorable demographic dynamics (India has a large youth population that exceeds 550 million) and corresponding low dependency ratio, healthy savings and investment rates, increasing consumerism, and increasing integration into the global economy. The International Monetary Fund (IMF) disclosed in March 2012 that amid overall growth slowdown in the fourth quarter of 2011, “growth increased strongly in India and Indonesia, modestly in the United States, but slowed somewhat in China.” Other factors that could keep fostering growth include inflows of foreign investment, as India ranks #2 after China in the A.T. Kearney “FDI Confidence Index” for 2012, and improvements in the Indian banking system.