MUMBAI: Steel Authority of India, the nation's biggest state-run producer, plans to build a 10 million metric ton steel mill in expectation of beating ArcelorMittal for the rights to control the nation's biggest iron ore reserves.

Sites for a plant to exploit the Chiria deposit in Jharkhand are being shortlisted, chairman S.K. Roongta said in an interview at the company's New Delhi headquarters, without specifying the cost or timeframe.

Steel Authority, which won back the right to half of the 2 billion deposit last month, is battling ArcelorMittal, Tata Steel Ltd. and JSW Steel Ltd. for control of the rest of Chiria. The deposit, with iron content of as much as 65%, according to the steel ministry, was stripped from a Steel Authority unit in 2005 because it hadn't develop the block.

"Anyone who wants to put up a large sized plant is looking for a big deposit instead of fragmented ones," said A.S. Firoz, an independent steel analyst and former chief economist at India's steel ministry. "Chiria is attractive as its one of the few large deposits available in Jharkhand."

Steel Authority shares rose 1.83% at 166.6 rupees at 10:24 a.m. in Mumbai trading.

Luxembourg-based ArcelorMittal, which plans to invest $20 billion to set up two 12 million ton crude steel plants in India, is vying with Steel Authority to win the Chiria rights for its planned Jharkhand plant, Vijay Kumar Bhatnagar, head of the Indian unit of ArcleorMittal, said on Nov. 4.

Detailed Report

The states of Jharkhand, Orissa and Chhattisgarh hold 55% of India's iron ore reserves, the main steelmaking ingredient. The region has attracted investment proposals from more than 200 local and overseas steelmakers, according to steel ministry data.

Steel Authority has hired Mecon Ltd. to prepare a detailed project report, Roongta said in the interview on Nov. 4. Every 1 million tons of capacity may cost as much 4 billion rupees ($85 million), he said.

India's steel demand will probably grow by as much as 10% in the year ending March 31, according to the steel ministry.

Steel Authority, whose sales rose 30% last month from a year ago because of car and construction demand, is increasing capacity at its existing plants to increase output to 23.46 million tons from 14 million tons by March 2012.

The company has received government approval to sell shares equivalent to 10% of its existing capital and will use the proceeds to fund expansion, according to a statement last month. Another 10% of the company will be sold in two stages from the government's 86% holding, it said.

The company has borrowed 36 billion rupees this financial year and will raise an additional 14 billion rupees by March 31, Roongta said Oct. 30.