New Delhi: International Coal Ventures Pvt. Ltd (ICVL) has placed a bid for the coking coal project of Washpool Coal Pty Ltd, a subsidiary of Australia’s Aquila Resources Ltd, as the consortium of state-run companies seeks to buy its first overseas asset since its formation two years ago.
“We have bid for Aquila’s project,” said C.S. Verma, chairman of Steel Authority of India Ltd (SAIL), who also heads ICVL. “There are two assets (including Washpool) we are looking at, and one of them is likely to materialize this (financial) year. Both are for hard coking coal.”
ICVL’s board approved the commercial bid for the Australian property in October, Verma said. Questions emailed to Aquila Resources on Monday remained unanswered.
ICVL was set up in 2009 by five state-owned firms—SAIL, NTPC Ltd, Coal India Ltd, Rashtriya Ispat Nigam Ltd and NMDC Ltd—to secure overseas coal assets, but has failed to make much headway.
While private Indian firms have been successful in securing coal resources from foreign companies, ICVL, which has been pitted against Chinese coal miners such as China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd, has been unable to secure a single property.
Asset acquisition: SAIL chairman C.S. Verma. The second target for ICVL that could fructify this year is in Indonesia, says Verma. Ramesh Pathania/Mint
Disappointed by ICVL’s failure, NTPC is contemplating withdrawing from the consortium, according to people familiar with the development who declined to be named, Mint reported on 21 September.
ICVL has evaluated six opportunities for acquiring stakes in coal mining projects—together valued at a minimum $1.2 billion ( Rs 6,324 crore)—in the US, Australia, Singapore, South Africa and Mozambique, Mint reported on 7 September.
Washpool is a greenfield project with the potential to produce 2.6 million tonnes (mt) of hard coking coal from an open cut mine. The miner would also need to build roads.
A consultant said given the shortage of coking coal assets, it’ll be a good acquisition for ICVL.
“Good quality metallurgical coal assets are in great demand, specially by steel companies seeking raw material security,” said Arvind Pandey, partner and managing director at the Boston Consulting Group. “The prices of metallurgical coal are expected to remain firm for the next five to seven years, as it will be a while before large volumes from Mozambique and Mongolia start reaching global markets. Given tight markets, prima facie it is likely to be a good acquisition, assuming logistical challenges are sorted out.”
ICVL will have several hurdles to cross before it can accrue the gains of such an asset and any developments are unlikely to impact the share prices of the consortium partners, according to an analyst.
“ICVL has been quite disappointing so far. But even if this deal goes through, we will have to look at its valuations,” said Bhavesh Chauhan, senior analyst at Angel Broking Ltd. “The fact that it is a greenfield project means it will be several years before it is developed and how quickly it can produce the specified amount will have to be seen.”
The second target for ICVL that could fructify this year is in Indonesia, though the asset was not known, said Verma.
“This will be a government to government allocation, which means we have to wait for the Indonesian government to hand over an asset to us. We do not know which asset this will be. We have opened an office there and our men are hard at work to secure this. The government has to allocate an asset as there is an MoU (memorandum of understanding),” Verma added.
The high international price of coking coal prevented the consortium from making acquisitions earlier, Verma said. “Coking coal prices have been high and only now they are coming down. Because of this even mines have been valued high,” he said. “Now at least the trend of coking coal prices is down so we can make the acquisition.”
India does not have substantial good-quality metallurgical coal reserves. Demand for the fuel in 2009-10 was 40 million tonnes (mt), of which 23 mt was imported. Demand is expected to rise to nearly 90 mt by 2020.
Australia is the largest exporter of metallurgical coal in the world and is emerging as a major source of India’s mineral imports.
India has a known coal gross resource base of 264,000 mt, the fourth largest in the world, of which proven reserves are around 101,000 mt. Demand is around 600 million tonnes per annum (mtpa) and is set to touch 2,340 mtpa by 2030.