The mine developer and operator (MDO) route presents a large growth opportunity for domestic engineering, procurement and construction (EPC) players with relevant track record, Ind-Ra said in a report.
"MDO is a specialised operating leverage play and attracts limited competition, given the risks and reward involved. MDO projects offer multi-year revenue visibility, which strengthens the overall order book and imparts diversification benefits to the appointed EPC players," India Ratings and Research (Ind-Ra) said in the report.
It expects EPC contractors with an experience of excavating more than three million metric tonne per annum of mineral or overburden in mining belts, moderate free cash flow, low leverage translating into high financial flexibility to be strong contenders for MDO appointment.
The credit profile of the appointed MDOs during the mine development phase is perceived to be risky, owing to high capex and negative free cash flow, the report said.
However, "the credit profile is likely to improve gradually...As the cash flows are negative to low till the annual production reaches the peak production capacity, and thereafter turn positive," the rating agency said.
"As of May 2017, one out of the four MDOs appointed by central and state power utilities in the last 21 months has commenced mining operations and another two are likely to commence operations in FY18," the report said.
"The remaining MDO will commence mine development in FY19. The slow pace of appointment is attributed to the delay in securing requisite clearances and collection of techno- commercial data by the awarding authority for inviting prospective bids," it added.
Nevertheless, 14 captive coal mines owned by central and state power utilities with geological reserves of 6.8 billion metric tonnes are under various stages of bid invitation and evaluation, while techno-commercial bids for 19 mines with geological reserves of 9.3 billion metric tonnes are in the pipeline.
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