Public sector miner NMDC, which has proposed an outlay of Rs 1,200 crore for overseas acquisitions during the current financial year, believes that this is the right time to go for shopping. The acquisitions are proposed to be made partly through International Coal Ventures Limited (ICVL) and partly on its own.
The company is also hopeful that one are more assets would get finalised by the end of the current fiscal as ICVL has been carrying out due diligence of 4-5 assets of metal grade coal with size of reserves ranging from 50 to 500 million tonnes. Metal grade coal reserves are mostly available in Australia, Mozambique, USA and Canada.
"These are very opportune times as international coal prices have come down by 40-50% and with the result the market capitalisation of the leading coal companies has shrunk. This is the right time to acquire the assets overseas because of the view that beyond a level prices can not go down, though it is difficult to say whether the price have bottomed out," C S Verma, chairman and managing director of the Steel Authority of India Limited(SAIL) who also holds additional charge of NMDC as its chairman-cum-managing director, said.
Incidentally, both the NMDC and SAIL are a part of ICVL formed by five public sector companies including Coal India Limited, NTPC, the Rashtriya Ispat Nigam Limited (RINL). SAIL and CIL hold 27% equity each in ICVL with the other three companies sharing the remaining stake. The consortium partner NMDC would be investing in overseas buys in proportion to its equity stake of 14.29%.
While the early birds in private sector are now at a disadvantage with the valuations of the recently acquired coal and iron ore assets coming down due to pricing pressures on both the commodities, Verma believes that the current valuations are at a realistic level to enter the market.
Global prices for iron ore have come down to less than $100 per tonne from $200 per tonne a year ago and from $150 per tonne just six months back. Similarly, Coking coal prices have come down to $175 per tonne from $300-$325 per tonne a year back.
According to Verma, the evaluation of assets through ICVL are at a fairly advanced stage and negotiations with the owners of these assets are also parallelly on. Besides these, NMDC had also entered into non-disclosure agreements and submitted bids on its own for some assets in Tanzania (for gold mines) and a couple of coal assets South America. The company is also looking at acquiring other mineral assets, he said.
A part of the overseas capex for the current year would also go into the development of Legacy iron ore mine it had acquired in Australia last year, and the investment plan for development of this asset would be discussed in the next board meeting, Verma said.
According to Verma, most of the company's current year's capex of Rs 4,656 crore, excluding the Rs 1,200 crore overseas investment component, would be go into the Nagarnar Steel plant which was approved with a project cost of Rs 15,525 crore and a portion of it would be utilised for the development of Kumaraswamy and Bailadilla iron ore mines. The company had already placed orders worth Rs 13,000 crore for the steel plant and so far incurred an expenditure of Rs 1,221 crore.
Perspective Plan
NMDC is in the process of preparing a perspective plan till 2020 in which it identifies areas of value addition both through forward and backward integration, including maximising investments in pelletisation. The company also set a target to achieve 40 million tonne iron ore production capacity by 2014-15 and 50 million tonnes by 2020 from the current levels of 32 million tonnes, according to Verma.
The proposed increase in iron ore production is in line with the new capacity additions in steel production, which, according to Verma, would go up to 110-120 million tonnes by 2013-14 as compare to the current installed capacity of 80 million tonnes and an actual production of close to 76 million tonnes in the country.
"Besides this we are also laying proper emphasis on drilling and resource planning in a bid to increase the resource base," he said adding that the company had approved the highest ever capex of Rs 30,072 crore for the 12th five year plan.
