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Coal India nears coking coal asset acquisition in Australia

Coal India had floated a closed tender for empanelled merchant bankers

Avishek Rakshit  |  Kolkata 

ith drinking water at a railway coal yard on the outskirts of Ahmedabad. Photo: Reuters
A worker carries a container filled with drinking water at a railway coal yard on the outskirts of Ahmedabad. Photo: Reuters

On the lookout for acquisition of assets abroad, government-owned is in an advanced stage of talks with an Australian coal mining company based out of Queensland, where it plans to acquire substantial stake.

In this regard, had floated a closed tender for empanelled of which and have shown interest, to carry the transaction forward.

"The Australian company had asked us to revert after appointing a merchant banker and the tender to select one is in an advanced stage," a senior official told Business Standard. He said they would take a "substantial stake", most likely 20-25 per cent at least. Ad hoc budget of Rs 6,000 crore has been okayed, for now, to take the transaction forward.

Without revealing the name of the Australian miner, sources said the former has six licenses for mining under the application stage and one licence had been granted to it by the Australian authorities.

For taking the equity stake, will have to commit a minimum purchase of every year from the Australian company. "At this point, we are in talks with steel companies for back-end tie-up. If we give a minimum off-take commitment to the Australian firm, we have to sell it in India. Unless we have a back-end tie in place, the model won't make much sense," the official said.

The proposed agreement includes a technology transfer clause, from which hopes to improvise its own Indian mining operations in open cast mines.

A second official of said it had got a ministerial nod with the proposal sometime earlier.

A sector analyst says landed prices are near $100 a tonne and another $8-10 needs to be spent by the buyer to transport it from the ports. "has to offer at prices below the landed cost and might also have to discount loading and transportation charges if it wishes to secure a back-end commitment from a steel firm," an analyst with told this publication.

Also, has to secure a minimum 12 per cent return on capital for the investment to be made in the Australian company, a pre-requisite for offshore expansion by Indian government-owned firms, says the analyst. 

A second analyst says although the government is trying to minimise coal import (these fell from 217.8 million tonnes in 2014-15 to 204 mt in 2015-16 and to 191 mt in 2016-17), India will continue to rely on this route, as quality is absent in this country.

Around 30 per cent of the 50-60 mt annual demand for is met by domestic supply. The rest is catered from import, mainly from Indonesia, and South Africa. Estimates suggest that by 2030, the steel sector will be demanding 180 mt of a year, when steel production is targeted to reach 300 mt.

In August last year, signed a memorandum of understanding with the South African government's African Exploration Mining and Corporation to identify, acquire, explore and develop coal assets, namely, the coking variant, in South Africa. However, the deal got stuck at South Africa's end.

Also, in Mozambique, which remained on Coal India's radar until 2015, the company had to relinquish 2/3rd of its 224 sq km area, as coal seams could not be found. Now, an exit route from that country is being discussed.

In its Australian venture before, had tried for a 10 per cent stake in Peabody Energy in February 2011; however, the deal finally didn't work out.


First Published: Thu, September 14 2017. 01:53 IST