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Coal India Will Purchase Overseas Mines to Meet Import Demand
By Rakteem Katakey and Rajesh Kumar Singh - Nov 26, 2010 7:35 PM GMT+0800
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Business ExchangeBuzz up!DiggPrint Email . Partha S Bhattacharyya, chairman of Coal India Ltd. Photographer: Dhiraj Singh/Bloomberg
Coal India Ltd., the worlds largest producer of the fuel, is studying the acquisition of five mines in the U.S., Australia and Indonesia to meet the countrys demand for the fuel, Chairman Partha Bhattacharyya said.

The state-owned company is examining a mine in Australia owned by Peabody Energy Corp., one in the U.S. owned by Massey Energy Co. and another in Indonesia, Bhattacharyya said, declining to name the third company. While Coal India hasnt started due diligence on two more mines in Australia, it may appoint banks soon to evaluate offers, he said.

We are narrowing the gap of valuations with Peabody, Bhattacharyya, 59, said in an interview in New Delhi yesterday. We would like to invest because there are companies which want money for their mines or a market for their coal, he said. We have the money and there is a big market here.

The Kolkata-based mining company has 380.5 billion rupees ($8.3 billion) in cash for acquisitions as consumption rises in Asias second-biggest energy consumer. Indias annual coal demand will exceed output by 100 million metric tons in four years and Coal India aims to meet half the shortfall from overseas mines, the chairman said.

Its absolutely critical not just for the company but also for the country, said Jagannadham Thunuguntla, chief strategist at SMC Global Securities Ltd. in New Delhi. From a macro-economic standpoint, it is very important for India to have control over natural resources and Coal India is a trump card for the government.

Indonesia Venture

Bhattacharyya said Coal India may also begin talks with the Indonesian government in January on a proposed venture with state-owned miner PT Tambang Batubara Bukit Asam.

At the last meeting of an Indonesia-India working group we had suggested Bukit Asam is a government-owned company, and if certain blocks can be operated jointly by forming a venture, he said. They have said in the next meeting they will bring up something. Thats likely to be in January.

Coal India fell 0.2 percent to 312.70 rupees at the close in Mumbai trading as Indian stocks declined, dragging the benchmark Sensitive Index 0.9 percent lower. The stock has gained 28 percent since the government sold a 10 percent stake in the company at 245 rupees a share last month in Indias largest initial share sale.

Of 20 analysts that cover Coal India, 16 recommend buying the stock and one recommends selling.

IPO, Output

Prime Minister Manmohan Singh raised 152 billion rupees from the IPO in October, offering the stock at a discount to global peers. Indias economy grew at the fastest pace in more than two years in the three months ended June 30, spurring energy demand.

Coal India and its units, which account for 82 percent of the nations production of the fuel, posted a 29 percent increase in net income to 40.2 billion rupees in the six months ended Sept. 30, the miner said Nov. 23. The miner has 17.1 billion rupees of loans outstanding, payable through 2044, according to Bloomberg data.

Coal asset prices may go up in future because of rising demand from India and environmental constraints, which are likely to hamper production, said K.K. Mital, a New Delhi- based fund manager with Globe Capital Market Ltd. So, now is the right time for Coal India to make these acquisitions, if they come at the right price.

Indias government has pledged to provide electricity nationwide by 2012 and needs to increase installed generation capacity to 200,000 megawatts to sustain economic growth, according to the power ministry. More than half of the current capacity of 167,278 megawatts is fueled by coal.

Coal demand in India may more than triple in the next two decades to 2 billion metric tons, Coal Minister Sriprakash Jaiswal said Sept 24. India produces 530 million tons of coal a year and imports about 67 million tons, the minister said.

Coal India has proven reserves of 52.55 billion tons, of which 21.75 billion is extractable, according to the IPO document.

To contact the reporters on this story: Rakteem Katakey in New Delhi at [email protected]; Rajesh Kumar Singh in New Delhi at [email protected].

To contact the editor responsible for this story: Amit Prakash at [email protected].
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