Gujarat NRE, Saurashtra Fuels have equity, purchase commitment
The mishap at New Zealand's Pike River coal mine, where 29 men are still missing, could have implications for two Indian companies, Gujarat NRE Coke and Saurashtra Fuels, the second and third largest shareholders, respectively, in the mining company.
Gujarat NRE Coke, the largest independent manufacturer of low ash metallurgical coke (LAMC) in the country, holds 7.1 per cent share in Pike River Coal. While Saurashtra Fuels, the largest merchant manufacturer of LAMC in India, has a 5.5 per cent stake. Also, Gujarat NRE's vice-chairman and managing director, Arun Jagatramka, as well as Saurashtra Fuels' managing director, Dipak Agarwalla, are non-executive directors in Pike River Coal.
The first export shipment of 20,000 tonnes from the mine was brought to India in February this year. The two domestic companies have an agreement to take 55 per cent of Pike River's coal.
An explosion at the mine last Friday left 29 miners unaccounted. Rescue has been hampered by fluctuations in the levels of toxic gases such as methane and carbon dioxide.
Pike River Coal controls the largest-known deposit of hard coking coal in New Zealand, with reserves of 58.5 million tonnes. It is also understood to have the lowest ash content for coking coal in the world.
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Pike River Coal has been plagued by a series of problems, which led to a revision of its production forecast this financial year. In October, the company nearly halved its production target for the year ending June 2011, to between 320,000 and 360,000 tonnes, despite having announced in April that it expected to finish the period with approximately 620,000 tonnes.
This new mishap could further slow down things for the project, as New Zealand's Prime Minister has reportedly said an inquiry would be launched. Trading of Pike River Coal and NZOG shares have also been suspended on the New Zealand and Australian stock exchanges.
Arun Jagatramka, though, said: "There is no reason to not remain confident" about the project. "At the moment we are praying for the safety of the miners. But I don't see any commercial impact of this in the long term."
Adding: "There have been some delays and full-scale hydro-production is yet to start. We will reassess the situation after this accident."
Saurashtra Fuels' chief financial officer, Arun Lodha, refused to comment on the possible commercial impact of the accident on the project, but indicated the delays were expected. "In the development stage, the initial years are usually tough. But the quality of coal is high and there is no problem with the project," he said.
Analysts expect the impact to be short-term but much will also hinge on the outcome of the investigations.
"Gujarat NRE's liability is limited. But the mine was not fully functional, and was not contributing to the company's balance sheet. However, production may be hit as a result of this accident," said Rakesh Arora of Macquarie Research.
Rohith Thomas Mathew, an analyst with DBS Cholamandalam Securites Ltd, said costs could go up subsequent to the investigation, as there could be additional investment in safety. "There will be an impact, but it could be short-lived," he added.
Last month, Pike River CEO Peter Whittall had said: "Slower roadway development to date and lower forecast development in the next few months ahead of the introduction of the second ABM20 continuous mining machine and an upgrade to one of the current machines will result in some interruptions to hydro production in the new year."