Coal India upbeat over metals mining venture, wants to go it alone

Analysts fear investments in project will hurt firm's cash flow in near term

Coal India's decision to re-position itself as a holistic energy entity by foraying into the metallurgical mining sector is likely to place the government-owned major in the league of the world's top miners, including Glencore, Rio Tinto, BHP and Vale, among others.

A consultant has been hired to conduct a study on how the company can modernise and adapt to current trends.

The metals mining move will also help it hedge against the impact of renewable energy. As India, in line with other countries, moves towards 'clean' and renewable energy, the dependence on thermal power would decline. This means less demand for coal. Coal India itself estimates the share of coal in the commercial energy supply to go down to 48-54 per cent by 2040, from 55 per cent during 2015-16 

"Hence, it is natural for a company solely dependent on coal sales to branch out and diversify into mining of other metals, where demand is likely to remain stable," says Partha Bhattacharyya, ex-chairman of Coal India.

Around 175 gigawatts (Gw) of renewables is projected to be added to the country's energy landscape by 2022. Total renewable energy capacity is expected to be 350 Gw by 2030. Declining rates for solar and wind power, now Rs 2.96 and Rs 3.64 per unit respectively, will help in popularising these sources. It is projected that around 60 per cent of India's energy needs will be sourced from renewables by 2040.

Another former chairman of Coal India, who wished anonymity, said the company needed to chart its own growth territory and find possibilities to stay relevant.

"First, it needs to be seen what the alternatives are. Metals mining is an obvious choice, given Coal India's expertise. It also opens a new revenue stream. There is no doubt that renewables are gaining prominence and Coal India has to consider it while formulating its long-term goals," he said.

Bhattacharyya added: "It is a meaningful diversification Coal India has undertaken. Globally, mining companies have a presence in coal, iron and several other minerals. Now, Coal India might also join the league."

However, the move will also result in considerable investment by the company and market analysts believe that if Coal India funds the new metal mining line from its own reserve of Rs 32,000 crore, dividends and cash flow could be hit in the near term.

"If Coal India doesn't revise prices, its cash flow will be in the range of Rs 10,000-12,000 crore per annum and reserves will go down. Thus, it will not be able to pay hefty dividends like before," said Rupesh Sankhe, research analyst with Reliance Securities.

Coal India officials are bullish on the proposed venture and are not bent on getting a partner for the metallurgical mining foray.

"If we can mine the iron on our own, why not sell it directly on our own? There are few success stories in joint ventures," a company official said.