The recent spurt in illegal mining activities across mineral mines, including coal mines, in the country could create hurdles for Coal India Ltd to garner valuations from its initial public offer (IPO) to be launched later this year.
The state-owned miner has listed the adverse affect of illegal mining and pilferage of coal from its mines as an internal risk factor in its draft prospectus and this might worry investors.
Conceding that such activities had increased in recent years, the company has cautioned investors on its impact. “There can be no assurance that illegal mining activities or pilferage of coal from our mines or stockpiles will not increase in the future,” Coal India said in its draft red herring prospectus, adding that any significant increase in such activities by others within any of its mines or coalfields could have a “material adverse impact on our business, financial condition, results of operations and prospects”.
In the past, too, Coal India’s operations have been adversely affected by illegal mining and unauthorised extraction and pilferage of coal from its mines. The company has attributed the recent spurt in such activities to the increase in market price for coal and increased demand in the black market.
‘Won’t affect IPO’
Merchant bankers for the issue, however, were not worried about illegal mining posing any major risk for valuations. “Although illegal mining is an issue for every mining company in our country, it is not a big issue for a company of the size of Coal India. It’s a standard procedure to do due diligence and bring to the attention of investors all the risks associated with the offer,” said a merchant banker for the issue.
Adding: “Coal India, with a production of 430 million tonnes last fiscal, is the largest coal mining firm in India. It is certain to get better valuations.”
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Industry analysts had similar views. “Illegal mining is not too much of a problem for Coal India, as anybody involved in such an activity will have to mine huge volumes to derive any gain. Though, pilferage and theft, from stocks or during transfer through the railways, is a major issue,” said a senior analyst from an accounting and consultancy firm.
The government has set a target of raising up to Rs 40,000 crore by selling stakes in major state sector firms this year. Coal India is likely to launch its public offer, billed as the largest IPO in the India capital market so far, on October 18 to raise up to Rs 15,000 crore.
But, illegal mining up
The Union government data show 182,000 cases of illegal mining were registered across 17 states in the past five years. It also shows that up to 92 per cent of Coal India’s production comes from 11 coalfields located in the illegal mining-infested states of Chhattisgarh, Orissa, Madhya Pradesh, Maharashtra, Jharkhand and West Bengal.
Coal India operates 471 mines in 21 coalfields across eight states in India — Chhattisgarh, West Bengal, Jharkhand, Maharashtra, MP, Orissa, Assam and UP. Except Assam and UP, for which data is not available, the other six states reported 65,200 cases of illegal mining in the past five years. In Maharashtra alone, the number of reported illegal mining cases has gone up from 4,919 in 2006 to 10,368 in the current year so far.
Coal India is the largest reserve holder in the world, at 64 billion tonnes, of which 52 bn tonnes are proven. With an annual production exceeding 431 million tonnes, the company is also the largest producer of the dry duel in the world.
However, India consumes 550 million tonnes of coal annually, which also makes it the third-largest coal consuming nation in the world. As the current annual imports of 45 million tonnes are insufficient to meet the rising demand, the shortfall in supply has pushed up the spot price of coal to 60 per cent over the notified price. This has prompted a historic increase in illegal mining and pilferage activities in mines across states.
The government is currently working on a bill to amend the archaic Mines and Minerals (Development and Regulation) Act, in a bid to check the rising trend of illegal mining. The draft proposes setting up of a mining regulator and special courts for this purpose.