Coal India to restart search to secure coal assets overseas

Kolkata: Unfazed by its earlier failed attempts to expand overseas, state-owned miner Coal India Ltd (CIL) will again scout for reserves of coking coal and high-grade low ash thermal coal in countries such as the US, Colombia, Canada, Australia, Indonesia and South Africa.

Mozambique, where last year it had to surrender a block taken for exploration because of its unfavourable geology, is not among the target countries this time, according to bid documents released by CIL.

The public sector behemoth appears to be a little behind in seizing the opportunity to secure assets when coal prices were low, experts said. But the CIL management is of the view that asset prices may have still not bottomed out.

Several coal producers in the US, including Peabody Energy Corp.—the world’s largest private sector coal miner—were until recently wallowing in losses and had filed for bankruptcy last year in the wake of falling coal prices.

But coal prices have started to firm up again, and many of them might emerge from the crisis within months with the help of fresh bank funding.

Inviting bids from investment bankers, CIL said it will not be able to meet the demand for coking coal and high-grade low ash thermal coal from its own mines in India, despite efforts to ramp up production.

Reserves of recoverable coking coal, which is used in production of steel, is limited in India, and high-grade low ash thermal coal is almost unavailable in India, CIL said in its bid document.

This isn’t the first time CIL is scouting for assets abroad.

Under the leadership of Partha S. Bhattacharyya, who retired as CIL chairman in February 2011, the company had almost concluded a deal to acquire a 10% stake in Peabody Energy, which would have given it access to a large volume of coking coal mined in Australia at a concessional price.

But the deal didn’t materialise because there were no clear guidelines on overseas acquisitions, Bhattacharyya had then said.

Overseas acquisitions are fraught with risks, and no executive at the state-run enterprise would take responsibility for a failed investment, said a key official at CIL, who didn’t wish to be named. “It had serious implications, even after retirement.”

Though the government tried to make things easier by issuing some guidelines towards the end of 2011, CIL started to explore other ways of importing coal such as through long term supply contracts with international producers. This plan, too, didn’t materialise.

This time, CIL is looking to partner overseas miners to start new mines or take equity interest in operating mines which will give it the right to import a certain share of the output—an arrangement which is known as production sharing or participation interest in mining parlance.

Previous attempts to acquire assets abroad failed because asset prices were too high for CIL’s liking, the spokesperson for the miner said, adding that miners were at that time driving a hard bargain because they had too many suitors.

Globally asset prices could soften further, according to this person, and CIL has entered the market at the right time. There’s been a bump in coal prices recently, but this would ease out in 3-4 months, he added.

“Scouting for coking coal assets abroad makes sense,” said an industry expert who didn’t want to be named. “But it is late in the day to look for thermal coal.” In India, demand for thermal coal—or the variant used in power generation—is not growing at a pace previously anticipated. That apart, the price of solar power is fast coming down, this person said, asking not to be named.