India Inc's foreign coal dreams turn to dust

Some of India's biggest business groups, including Jindal, GVK, Lanco, Adani and Essar, are struggling to make money from coal mines bought abroad during the boom years.

They are now planning to sell stakes in the mines or delaying the projects.

Most of these mines were bought when coal prices were $130 a tonne four years ago, as compared to $70 a tonne now. Their valuation would have dropped considerably, analysts said.

Jindal Steel & Power announced a $55 million (Rs 338 crore) loss in its June quarter results from its Mozambique coal operations due to high costs and a poor market. The company plans to lay a $900 million slurry pipeline to transport coal to the coast and ship it to India. But executives said unless coal prices rose, it would be difficult to make money.

"There was overinvestment at high prices by Indian companies which did not look at the medium-term price trends. Now with the Supreme Court and government clearing coal mining in India, prices will fall further, making imports expensive," said P Krishnamurthy, managing partner of Capital Partners & Advisors. Indian coal is available at an average $35 a tonne.

Jindal Steel & Power is cutting costs at its Australian coal mine, where it has reduced headcount by 38 per cent and has hired consultants to use modern technology to increase production to 2.5-3 million tonnes a year in the next couple of years from the current one million tonnes. The idea was to make operations profitable fast, company executives told analysts at a conference call after its June quarter results.

Similarly, the Lanco group, which acquired Griffin Coal in Australia, has agreed to sell a part of its stake in its mine. The company bought the Australian company for $665 million in 2011. Falling coal prices and the parent's company sagging financial health are the main reasons for the sale of the coal mine. The sale has not been concluded but bankers said valuation of the mine would be lower than what Lanco paid three years ago.

"The Australian mine has turned the corner due to cost cutting and a better realisation. But the sale of stake is on," said an analyst asking not to be named.

Australia and Africa are not the only continents where Indian companies are facing coal problems. The Essar group, which took over Trinity Coal in the US for $600 million in 2010, had to invest another $150 million in February this year to take the company out of bankruptcy. Trinity Coal sought bankruptcy protection after coal prices fell with easy availability of shale gas in the US. The mine supplies coal to Essar's plant in Algoma in Canada.

The Ahmedabad-based Adani group and Hyderabad's GVK group, which have big investments in Australian coal mines, are going slow with their projects. While Adani has promised to invest $16.5 billion in Australia, GVK was planning to invest $10 billion in "pit-to-port" logistical solutions.

Both Indian conglomerates are looking for partners who can pick up stakes in their projects in lieu of construction contracts and are optimistic they will be able to finish the projects on time. But analysts said it would be a challenge to make money out of the mines.