 "Coal block auction: Companies see benefits in long term")
The bigger pluses for metal companies which have won leases for coal blocks in the ongoing auction are long-term in nature, say analysts.
Compared to the cost of import, the current bid prices are still lower. The price in international markets is in any case much lower from the peak of a few years earlier and, hence, companies would benefit when prices revive. This is apart from raw material security.
So far, Hindalco Industries, flagship company of Aditya Birla Group, has won two small mines, Kathautia in Jharkhand and Gare Palma IV-5 in Chhattisgarh. Vedanta Group company Bharat Aluminium (Balco) has won the Chotia mine in Korba, the area from where it had also earlier sourced coal, from the Gevra & Kusmunda mines of South Eastern Coalfields.
“Though Hindalco is paying a high price for captive coal in the auctions, almost close to landed cost via the e-auction route, the landed cost from the mine allotted will still be at a 30-35 per cent discount from imported coal,” said Abhisar Jain, senior analyst with Centrum Broking.
Hindalco has a total annual coal requirement of 15-16 million tonnes. Though Kathautia with 800,000-tonne capacity and Gare Palma IV-5 of one mt is far from meeting its large requirement, it at least assures uninterrupted supply, said analysts.
“Kathautia will allow it to ramp-up its Mahan smelter, to double its metal production to 359,000 tonnes in FY16,” said Motilal Oswal, chairman, Motilal Oswal Securities. “Pricing, though high, is reasonable, considering the high quality of coal and proximity.” The block is 220 km from the Mahan smelter. Hindalco secured it for Rs 2,860 a tonne in forward bidding. The landed cost from this block would be Rs 3,500-4,500 a tonne, which includes extraction cost, royalty, final bid price and freight, said Motilal Oswal.
On Thursday, it secured Gare Palma IV-5 for Rs 3,502 a tonne. “This is high in extractable reserves and so the company can go in for a mine plan revision at a later date,” said Jain of Centrum Broking.
“We are not commenting on the subject at the moment,” Hindalco told Business Standard.
Analysts feel the company’s reliance on imported coal will continue, though the extent of dependency will decline significantly. “The company will have to look for blocks in non-producing mines as well. With producing and non-producing mines put together Hindalco can look to have 50-60 per cent of its total requirement met via captive coal. The rest it will have to import or buy in e-auction,” said Abhisar.
For Balco, the Chotia mine in the Korba region has not changed much for the company in terms of coal pricing.
“The landed cost of coal from Chotia is only slightly higher compared with that from Gevra & Kusmunda, so we do not see the pricing impact margins substantially,” a senior official told Business Standard.
A little less than 10 per cent of the annual requirement of Balco will be met uninterruptedly due to the Chotia mine, said the official. “The mine does not meet our requirement to a great extent but we can say we have some raw material security; that’s it.”
Balco recently got approval from the Chhattisgarh government to start a 1,200 Mw captive power plant. This is in addition to the two existing power units, with a capacity of 270 Mw and 540 Mw.
Nagpur-based Sunflag Iron and Steel has managed to retain its Belgaon mine, of 300,000 tonnes capacity. The company won it for Rs 1,785 a tonne
“In terms of pricing, there was no difference for us,” said Naveen Manchandier, its general manager, mines.
OCL Iron and Steel might see some cost escalation for the landed cost of coal, as the mine it has been allotted is in West Bengal, from the provisional allocation of one at Talcher in Odisha. OCL won the Ardhagram mine in West Bengal for Rs 2,302 a tonne. The company has a 14 Mw captive power plant and a steel plant in Rajganpur in Odisha. PREPARING FOR THE FUTURE
Hindalco Industries
Kathautia mine, Jharkhand
Capacity: 800,000 tonnes
Bid price: Rs 2,860/tonne
Gare Palma IV 5, Chhattisgarh
Capacity: 1 mn tonnes
Bid price: Rs 3,502/tonne
BHARAT ALUMINIUM CO (BALCO)
Chotia, Chhattisgarh
Capacity: 1 mn tonnes
Bid price: Rs 3,025/tonne
Sunflag Iron and Steel
Belgaon, Maharashtra
Capacity: 300,000 tonnes
Bid price: Rs 1,785/tonne
OCL Iron and Steel
Ardhagram, West Bengal
Capacity: 400,000 tonnes
Bid price: Rs 2,302 a tonne
Compared to the cost of import, the current bid prices are still lower. The price in international markets is in any case much lower from the peak of a few years earlier and, hence, companies would benefit when prices revive. This is apart from raw material security.
So far, Hindalco Industries, flagship company of Aditya Birla Group, has won two small mines, Kathautia in Jharkhand and Gare Palma IV-5 in Chhattisgarh. Vedanta Group company Bharat Aluminium (Balco) has won the Chotia mine in Korba, the area from where it had also earlier sourced coal, from the Gevra & Kusmunda mines of South Eastern Coalfields.
“Though Hindalco is paying a high price for captive coal in the auctions, almost close to landed cost via the e-auction route, the landed cost from the mine allotted will still be at a 30-35 per cent discount from imported coal,” said Abhisar Jain, senior analyst with Centrum Broking.
Hindalco has a total annual coal requirement of 15-16 million tonnes. Though Kathautia with 800,000-tonne capacity and Gare Palma IV-5 of one mt is far from meeting its large requirement, it at least assures uninterrupted supply, said analysts.
“Kathautia will allow it to ramp-up its Mahan smelter, to double its metal production to 359,000 tonnes in FY16,” said Motilal Oswal, chairman, Motilal Oswal Securities. “Pricing, though high, is reasonable, considering the high quality of coal and proximity.” The block is 220 km from the Mahan smelter. Hindalco secured it for Rs 2,860 a tonne in forward bidding. The landed cost from this block would be Rs 3,500-4,500 a tonne, which includes extraction cost, royalty, final bid price and freight, said Motilal Oswal.
On Thursday, it secured Gare Palma IV-5 for Rs 3,502 a tonne. “This is high in extractable reserves and so the company can go in for a mine plan revision at a later date,” said Jain of Centrum Broking.
“We are not commenting on the subject at the moment,” Hindalco told Business Standard.
Analysts feel the company’s reliance on imported coal will continue, though the extent of dependency will decline significantly. “The company will have to look for blocks in non-producing mines as well. With producing and non-producing mines put together Hindalco can look to have 50-60 per cent of its total requirement met via captive coal. The rest it will have to import or buy in e-auction,” said Abhisar.
For Balco, the Chotia mine in the Korba region has not changed much for the company in terms of coal pricing.
“The landed cost of coal from Chotia is only slightly higher compared with that from Gevra & Kusmunda, so we do not see the pricing impact margins substantially,” a senior official told Business Standard.
A little less than 10 per cent of the annual requirement of Balco will be met uninterruptedly due to the Chotia mine, said the official. “The mine does not meet our requirement to a great extent but we can say we have some raw material security; that’s it.”
Balco recently got approval from the Chhattisgarh government to start a 1,200 Mw captive power plant. This is in addition to the two existing power units, with a capacity of 270 Mw and 540 Mw.
Nagpur-based Sunflag Iron and Steel has managed to retain its Belgaon mine, of 300,000 tonnes capacity. The company won it for Rs 1,785 a tonne
“In terms of pricing, there was no difference for us,” said Naveen Manchandier, its general manager, mines.
OCL Iron and Steel might see some cost escalation for the landed cost of coal, as the mine it has been allotted is in West Bengal, from the provisional allocation of one at Talcher in Odisha. OCL won the Ardhagram mine in West Bengal for Rs 2,302 a tonne. The company has a 14 Mw captive power plant and a steel plant in Rajganpur in Odisha. PREPARING FOR THE FUTURE
Hindalco Industries
Kathautia mine, Jharkhand
Capacity: 800,000 tonnes
Bid price: Rs 2,860/tonne
Gare Palma IV 5, Chhattisgarh
Capacity: 1 mn tonnes
Bid price: Rs 3,502/tonne
BHARAT ALUMINIUM CO (BALCO)
Chotia, Chhattisgarh
Capacity: 1 mn tonnes
Bid price: Rs 3,025/tonne
Sunflag Iron and Steel
Belgaon, Maharashtra
Capacity: 300,000 tonnes
Bid price: Rs 1,785/tonne
OCL Iron and Steel
Ardhagram, West Bengal
Capacity: 400,000 tonnes
Bid price: Rs 2,302 a tonne
Source: MSTC Ltd