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State-owned miner Coal India Ltd (CIL), which plans to invest Rs 6,000 crore in foreign acquisitions in FY14, is evaluating buying stakes in three coal assets in Australia to bridge the shortfall in its domestic production, sources said.
"We had signed non-disclosure agreements with three companies in Australia in April. The three mines have a combined production of 25 million tonnes (mt) per annum currently," said a top CIL executive. He added the equity participation being sought by the miner varies between 25 per cent and 50 per cent in the ventures.
CIL may have to shell out around $375 million for the deal, assuming the miner takes up at least 25 per cent stake in each of the three mines, an average of 30 year life of the mines and the current average coal asset valuation of $2 per tonne in the international market. This puts the combined worth of the three properties at $1.5 billion on a reserve base of 750 mt.
However, signing of non-disclosure agreements is only the first step in the negotiations involving mineral asset acquisitions and does not indicate finality of talks. Coal India, under pressure to meet its domestic supply commitments, has been looking abroad for the past four years, but has failed to strike a deal so far. The company is looking at importing 5-6 mt of coal in FY14 to supply to power firms. Experts gave a thumbs up to CIL's plan saying the continued slide in global coal prices, coupled with the flight of liquidity from the market, provide a good opportunity for the company to plan its assets purchase. "However, it would make more economic sense to purchase metallurgical grade coal properties in Australia. Also, most thermal coal assets are located far away from the sea in that nation making imports an expensive proposition owing to the requirement of investment in rail and ports infrastructure," said Dipesh Dipu, partner at Jenisse Management Consultants. CIL has put aside Rs 25,000 crore for for
eign acquisitions till 2017, Pratik Patil, minister of state for coal, had said in reply to a question in Parliament in March. CIL's cash and bank balance stood at a hefty Rs 60,000 crore at the end of March this year.
Earlier, CIL had planned a 15 per cent stake purchase in US-based Peabody Energy's $600-million mining project in Australia. The two companies had planned to set up a joint venture to implement the project at Wilkie Creek coal mine in Queensland. Peabody Energy is the world's largest private coal producer with reserves exceeding nine billion tonnes.
According to the CIL executive, the company has been looking at similar proposals in the US and Indonesia. The firm produced 452 mt coal in FY13 and is looking at a 9 per cent jump in output this year. This would still leave a 180 mt gap in availability to be met through imports.
CIL to sign FSAs with NPCL
After protracted negotiations, CIL will be signing seven or eight fuel supply agreements (FSAs) with NTPC Ltd on Wednesday. In all, FSAs will be signed for 4,000 mw for eight power stations. The two companies have agreed for a third party sampling at the loading point.
