LONDON—The U.K. government is in talks with metals firm Liberty House to take over much of Tata Steel Ltd.’s British operations and stave off factory closures that could spell the death of the steel industry here.
The fate of Britain’s steel plants has become a political test for Conservative Prime Minister David Cameron, who is facing calls for the government to nationalize the industry to save thousands of blue-collar jobs...
LONDON—The U.K. government is in talks with metals firm Liberty House to take over much of Tata Steel Ltd. ’s British operations and stave off factory closures that could spell the death of the steel industry here.
The fate of Britain’s steel plants has become a political test for Conservative Prime Minister David Cameron, who is facing calls for the government to nationalize the industry to save thousands of blue-collar jobs in Wales and elsewhere. Mr. Cameron is meeting with Wales First Minister Carwyn Jones on Tuesday to discuss the future of Tata Steel’s Port Talbot plant, the biggest of the factories potentially up for sale.
“The government is doing everything it can to find a long-term, viable solution to save the Port Talbot steelworks,” Mr. Cameron said.
Liberty House’s founder and executive chairman, Sanjeev Gupta, said he is willing to buy the Port Talbot plant from Tata Steel but wants to know what kind of government support his commodities firm could get. He said the government needs to help with the plant’s pension-fund liabilities, its high energy costs and loss-making equipment before he would consider a takeover.
“They are engaging positively but [it is] still early days,” Mr. Gupta said in an interview Monday.
The U.K. Business Secretary Sajid Javid has said the government would consider all options to help the India-based steelmaker secure a buyer, including potential state aid on matters such as pension-fund liabilities, energy costs, and strongerU.K.steel procurement guidelines on government contracts. At risk are about 4,300 jobs in a Welsh region known for its reliance on the steel industry.
Tata Steel, Europe’s second-largest steelmaker by production capacity, said it “urgently” needs to sell its U.K. assets, which have “severe funding” problems. The company’s European operations have incurred nine months of consecutive losses through December, according to the company’s quarterly financial reports.
The potential loss of thousands of jobs has sent the U.K. government scrambling to keep operations running, with particular focus on Port Talbot, Tata Steel’s largest British asset. Labour Party opposition leaders have called on the Conservative government to nationalize the plant, if needed, to save jobs.
Britain’s steelmakers have been buffeted by weak steel prices and an onslaught of cheap steel imports from China, the world’s largest steel producer. Because steel plants use significant amounts of energy, they also have been hit with taxes on carbon emissions and other levies to raise money for renewable energy projects.
Tata Steel’s U.K. operations accounted for about 70% of the country’s domestic steel output last year.
Separately, another investment firm, Greybull Capital LLP, has been in talks with Tata Steel since December over the potential sale of its British operations and a mill in France that provide steel for the construction and railway industries, known as long products.
The financiers behind Greybull Capital have secured £400 million ($569 million) in financing to turn around the assets, said a person familiar with the matter. The final investment figure and timing are still subject to change.
Liberty House’s Mr. Gupta has proved willing to jump into the U.K. steel market as others have left. Liberty House acquired and then restarted a hot strip mill in Newport, South Wales, 2½ years after it was idled. It then acquired U.K. steel tube factories, saving hundreds of jobs in the process,and last month bought Tata’s two Scottish steel mills for a nominal sum.
Mr. Gupta said the U.K. steel industry has to change its production practices, making steel from recycled scrap instead of from scratch via blast furnaces that use imported raw materials like iron ore and coal.
“We would be making the same steel,” he said, but more efficiently without costly blast furnaces that depend on imported materials. “We have a domestic raw material that could meet all our needs.”
The Liberty House founder acknowledged that energy costs for recycling steel are still expensive. He said he is hopeful the government will make concessions on the company’s environmental taxes to support Liberty House’s ambitions to produce two million tons of steel annually from Newport, Wales.
Write to Alex MacDonald at alex.macdonald@wsj.com