CIL eyes coal mines in South Africa as it gears up to meet 1 billion target

State-owned CIL is planning to acquire coal mines in South Africa in partnership with local government amid falling prices of assets globally as it gears up to meet the 1 billion output target,.

"Coal India has plans of acquiring coal mines in South Africa," an official said.

It is looking at acquiring mines in partnership with the government of South Africa, he said, declining to share further details.

The world's biggest coal miner had earlier decided to relinquish nearly three-fourths of the two blocks it was allotted in Mozambique for exploration and development. The decision was based on interim geological report prepared by CMPDIL - a planning subsidiary of CIL.

Coal India Africana Limitada (CIAL), a fully-owned subsidiary of the state-owned firm, was allotted two leasehold licences for extraction of coal of  224 sq km in Tete province of Mozambique in August 2009.

"I can only tell you that Coal India has plans of acquiring mines in South Africa in partnership with the government there," the CIL official said.

Sharing his views on availability of coal assets in global market, KPMG's Niladri Bhattacharjee said that just because an asset is priced less may not make it suitable for acquisition.

Operating coal assets up for sale globally may now be priced low for the simple reason that they are uncompetitive and global demand is structurally reduced on account of Chinese growth going out of the market, he said.

"New reserves (in Mozambique or Waterberg region of South Africa) suffer from developmental and evacuation challenges thereby increasing their time-to-value. Also the ocean freight and evacuation from discharge port stand-point will continue to pose a challenge for imported coal being competitive," Bhattacharjee said, adding that any new asset investment needs to be with a horizon of 30 years or so.

With the uptick in domestic coal production and renewables, imports are steadily decreasing. It is perhaps best for coal public sector undertakings to focus on maximising domestic production now than investing on assets which can turn into a liability after 2025/2030, he said.

According to Rajiv Agrawal, Secretary, Indian Captive Power Producers Association, on an average current South African coal price is between $42-44 per tonne and the futures market suggests below $40 per tonne.

On the other hand, average domestic prices of coal are in the range of Rs 1,100 to Rs 1,200 per tonne, nearly half that rate.

CIL, which accounts for moe than 80 per cent of the domestic coal production, has targeted one billion tonnes of dry fuel output by 2020. It is set for a record production of 550 million tonnes in this financial year.