Coal India mulls buying stake in three coal properties in Australia

The stake-buy estimated to be a $375-million deal

State-owned miner Coal India Ltd (CIL) is evaluating buying stakes in three coal assets in mineral-rich Australia to bridge the shortfall in its domestic production. The company is planning to invest Rs 6,000 crore in foreign acquisitions this financial year.

“We had signed non-disclosure agreements with three companies in Australia in April. The three mines have a combined production of 25 million tonne per annum currently,” a top CIL executive said. He added the equity participation being sought by the miner varies between 25% and 50% in the ventures.

CIL may have to shell out around $375 million for the deal, assuming the miner takes up at least 25% stake in each of the three mines, an average of 30 year life of the mines and the current average coal asset valuation of $2 per tonne in the international market. This puts the combined worth of the three properties at $1.5 billion on a reserve base of 750 million tonne.

However, signing of non-disclosure agreements is only a first step in the negotiations involving mineral asset acquisitions and does not indicate finality of talks. Coal India, under pressure to meet its domestic supply commitments, has been looking abroad since the past four years but has failed to strike a deal so far. The company is looking at importing 5-6 MT coal this fiscal for supplying to power firms.

Experts gave a thumbs up to CIL’s plan saying the continued slide in global coal prices coupled with the flight of liquidity from the market provide a good opportunity for the company to plan its assets purchase. “However, it would make more economic sense to purchase metallurgical grade coal properties in Australia.

Also, most thermal coal assets are located far away from the sea in that nation making imports an expensive proposition owing to the requirement of investment in rail and ports infrastructure,” Dipesh Dipu, Partner at Jenisse Management Consultants said.

CIL has put aside Rs 25,000 crore for foreign acquisitions till 2017, Minister of State for coal, Pratik Patil had said in reply to a question asked in Parliament in March. Coal India’s cash and bank balance stood at a hefty Rs 60,000 crore at the end of March this year.

CIL had earlier planned a 15% stake purchase in US-based Peabody Energy’s $600 million mining project in Australia. The two companies had planned to set up a joint venture to implement the project at Wilkie Creek coal mine in Queensland. Peabody energy is the world’s largest private coal producer with reserves exceeding 9 billion tonne.

The CIL executive said it has been looking at similar proposals for overseas buys in the US and Indonesia. The company produced 452 MT coal last fiscal and is looking at a 9% jump in output this year. This would still leave a 180 MT gap in availability to be met through imports.

FSAs SIGNING TODAY: After protracted negotiations, CIL will be signing seven to eight fuel supply agreements with NTPC Ltd on Wednesday. In all, FSAs will be signed for 4000 mw for eight power stations. The two companies have agreed for third party sampling at the loading point.

CIL’s share price at the Bombay Stock Exchange (BSE) today closed at Rs 294.05, up 0.5% as compared to previous close.