New Aussie govt brings cheer to Indian miners

About a fortnight ago, the International Coal Ventures Ltd (ICVL) board approved a binding bid for a deposit having estimated reserves of 220 million tonnes in Queensland, Australia. ICVL is a special purpose vehicle (SPV) of five giant state-owned undertakings: Steel Authority of India, Coal India, NMDC, NTPC and Rashtriya Ispat Nigam.

Since then, there has been some good news. A new government has taken office in Australia, which has said it will review its predecessor’s controversial proposal for a 40 per cent super-profit tax on mining revenues. The Indian bid had factored this proposal while approving it.

Indian miners, with limited resources in the home country, are breathing easier. “It raises the attractiveness of Australia for sure,” said Rana Som, chairman and managing director of NMDC, the country’s largest iron ore producer.

NMDC also happens to be part of a consortium that has pitched for a 70 per cent stake in Australian ore producer Atlas Iron’s Ridley project. The firm, which happens to be the sole Indian bidder in the fray, would have a 15 per cent stake in the project, including sweat equity of five per cent.

“The binding bid is yet to be submitted,” said Som. With the threat of a super-profit tax diminishing, valuations may have to be revisited. “Valuation is only a part,” says Som, but adds it would certainly make more assets viable.

India has an estimated 23.59 billion tonnes of iron ore, of which only 6.311 billion tonnes is proven. For coking coal, the country is largely dependent on imports. India has only 4.6 billion tonnes of proven reserves, of inferior quality.

Aussie pull
Quite a few Indian companies have an established presence in Australia, either through joint ventures or on their own. Some of them are Tata Steel, Bhushan Steel, Gujarat NRE Coke, Tata Power and Sterlite. Many more are scouting.

Of those, state-owned Coal India Ltd (CIL) has a sizable war chest of Rs 6,000 crore for foreign acquisitions this financial year and is examining coal assets, including those in Australia, to bridge the supply-demand gap in India.

“If the (super profit) tax is not there, then it improves the valuation of Australian coal assets compared to those in other countries. CIL is carrying out due diligence for assets there already,” a source said.

RPG group Vice-Chairman Sanjiv Goenka indicated the mining sector in Australia would remain attractive in the absence of the proposed profit tax.

The RPG Group has had to abort a number of recent acquisition attempts in Indonesia, after stated reserves of the mines on offer turned out to be much lower than actual reserves.

India is already the world’s fastest growing coal importer and is expected to import 72 million tonnes of the fuel in 2011, on the back of substantial augmentation of power generation capacities nationwide that will stretch the demand-supply mismatch further.

Australia’s attractiveness extends beyond coal and iron ore. Hindalco has a 15 per cent deficit in copper concentrate and has intensified its mine hunt. Hindalco’s managing director, Debu Bhattacharya, has one more option. “We are evaluating now if we can reopen the Mount Gordon mines in the east coast of Australia.”