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MMTC drops proposal to buy overseas coal mines

MMTC drops proposal to buy overseas coal mines
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First Published: Sun, Jul 03 2011. 11 22 PM IST
Updated: Sun, Jul 03 2011. 11 22 PM IST
New Delhi : In a major consolidation exercise, state-owned trader MMTC Ltd has dropped plans of buying overseas coal mines, commercial farming in Africa and generating electricity locally.
The company would instead concentrate on its core businesses such as minerals, metals and general trading, acting chairman and managing director H.S. Mann said.
To help meet a demand mismatch for coal in India, MMTC had tried to acquire equity in overseas mines.
The government has been unable to ensure coal supplies to sectors such as power and steel. This has lead to firms such as Coal India Ltd, International Coal Ventures Ltd and NTPC Ltd scout for coal resources abroad.
“Our balance sheet is not like Coal India. We have a small net worth,” said Mann. “We have taken a conscious decision of not getting into new areas and will consolidate our operations in the seven areas that we are present in.”
MMTC posted a 52% growth in revenue in the year ended 31 March to Rs68,833.27 crore, but net profit dipped by 47% to Rs112.77crore due to declining mineral exports.
Coal is abundantly available in India, but its exploitation has been hobbled by lack of investment and concerns over environmental damage. The country has known coal reserves of 264,000 million tonnes (mt), the fourth largest in the world, of which proven reserves are around 101,000 mt. Demand is currently around 600 mt per annum (mtpa) and is set to touch 2,340 mtpa by 2030.
“While there are success stories of firms venturing into mining, both in India and overseas, as part of their backward integration strategies, such initiatives may not be easy to see through,” said Dipesh Dipu, director of consulting, energy and resources, mining at Deloitte Touche Tohmatsu India Pvt. Ltd. “This is more so when the industry is grappling through regulatory interventions.”
“There are mounting cost pressures, and increasingly, mining requires investment in infrastructure development as well. To further complicate the matters, while the good quality assets are difficult to get, the costs of acquisitions are on a rise,” he added. “These make mining ventures challenging.”
Attracted by cheap land and labour costs in Africa, MMTC was keen to grow pulses in Africa to meet shortages at home. To start with, the firm had plans to cultivate 2 mt of pulses in Tanzania and Kenya. India imports around 3.5 mt of pulses worth Rs14,175 crore every year.
MMTC was also awarded a 1,350 megawatts power project and a coal mine by the Chhattisgarh government, which was later scrapped.
“We don’t intend to go forward with the commercial farming plans,” said Mann. “We have dropped the power plans. It was discussed at the financial director’s level.”
“One also needs the management bandwidth to manage new businesses,” he added.
“One of the key ingredients of successful integration into mining ventures is a talent pool that can help analyse, assess, value, acquire and operationalize mining assets, which globally, and in India, have been on an acute short supply,” said Dipu. “Minus such human capital, strategies are unlikely to fructify.”
utpal.b@livemint.com
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First Published: Sun, Jul 03 2011. 11 22 PM IST