Coal India zeroes in on Australia and South Africa for acquisitions

The Dollar Business Bureau

Emboldened by inflated valuations due to doubling of coking coal prices in the previous year, Coal India Ltd. (CIL) had announced plans to explore coking coal assets in US, Colombia, South Africa, Indonesia and Australia.

It has been reported that CIL has now zeroed in on Australia and South Africa for foreign acquisitions. The logistical advantage of shipping coal from Australia due to its proximity makes the country favourable over US or South Africa.

The government-owned coal giant started exploring opportunities outside India in January 2017, via its subsidiary Coal Videsh. Lack of technological wherewithal required to build domestic reserves prompted the public sector coal miner to explore opportunities abroad in January 2017.

CIL has two routes available for it to acquire strategic coal assets abroad. The first one is to buy-off operations via direct and immediate investment, which may be too bold a step for a cautious public sector undertaking. The second way in which to expand operations abroad would be to partner with foreign operational firms- the more feasible route.

However, a partnership between an Indian public sector behemoth and the privatised coal mining companies in countries like Indonesia and Australia is not a traditional way of operating.

Recently, Coal India, along with 12 other Indian coal companies, was put on the 'exclusion' list by the world's largest state-owned investment fund, Norway’s Government Pension Fund Global (GPFG). The fund divested from companies earning more than 30% of their revenues from thermal coal, due to environmental concerns.

While sky-rocketing coking coal prices have been all the rage in the past year, CIL's output of coking coal rose only by 6.5% in the FY 2015-16, compared to 9.3% production increase in non-coking coal during the same year. Also, coking coal formed only 10% of the total coal production, which stood at 538.76 million tonnes (mt) in 2015-16. Currently, Coal India has a capacity to fulfill 30%-35% coking coal requirement in the country.

In December 2016, the coking coal prices had shot up to $283 per tonne from $80 during January 2016. Some relief washed over coking coal buyers as prices came down to $193 per tonne in January 2017. Experts estimate the average in 2017 to be $150.

For the year 2016-17, CIL's coal production increased marginally by 2.9% to 554.13 mt, missing the target of 598.61 mt set by the ministry earlier. The state-owned coal major's production target for FY 2017-18 stands at 661 mt.