New Delhi: In one of the largest overseas coal mine acquisitions, GVK Power and Infrastructure Ltd is set to purchase two of Hancock Prospecting Pty Ltd’s (HPPL) thermal coal mines in Australia for around $2.4 billion (around Rs10,730 crore).
An initial agreement has been signed by Sanjay Reddy, vice-chairman of GVK, with Gina Rinehart, chairman of HPPL, earlier this month.
The acquisition is the key to GVK group’s plans to expand its present power generation capacity of 901 megawatts (MW) to 10,000MW by 2013. Lack of secure fuel supplies is forcing some developers to operate at sub-optimal capacities.
The two coal mines, Tad’s Corner and Kevin’s Corner, are owned by Hancock Coal Pty Ltd and Hancock Galilee Pty Ltd, both subsidiaries of HPPL, and are located in Queensland. The two mines have a capacity of 30 million tonnes per annum each, with Tad’s Corner and Kevin’s Corner having 3.6 billion tonnes and 4.27 billion tonnes as recoverable resource bases, respectively.
According to documents reviewed by Mint, the two mines have shared mine infrastructure, rail and port facilities.
“The individuals have signed, but the companies haven’t. It will take around a month for the complete paperwork to be completed. A formal announcement is expected shortly after that,” said a senior GVK executive, who did not want to be identified since the deal is yet to be fully completed. In response to a direct question about a preliminary agreement being inked, GVK group?chairman G.V. Krishna Reddy declined comment, citing a “confidentiality clause”.
While a GVK group spokesperson in an email reply said, “I won’t be able to reply to your questions because as a company policy we do not comment on speculation,” questions emailed to Tad Watroba, executive director of Hancock group of companies, and Daphne Dhimitri, executive assistant to Rinehart, on Tuesday remained unanswered. A message left for Rinehart on Dhimitri’s phone was also not returned.
While an initial sum of $1.25 billion will be paid at the time of completion of formalities, the balance will be paid in two equal instalments. GVK may also have to spend an additional $9 billion to develop the mines, extract coal and set up transport infrastructure. The deadline for exclusive negotiations, which have been on for some time now, was extended from May to June.
“It fits well strategically for Indian power generation companies that have ambitious growth plans, as this promises a longer-term supply security of good quality coal, and coal mining operations can be scaled up with time. The stable regulatory framework and developed financial markets for resources in Australia also make it possible to operationalize mines on schedule,” said Dipesh Dipu, director (consulting, energy and resources, mining) at Deloitte Touche Tohmatsu India Pvt. Ltd.
Some of the largest coal mine acquisitions made by Indian firms include Lanco Infratech Ltd’s purchase of Griffin Coal Mining Co. Pty Ltd’s coal mines in Western Australia for A$750 million (around Rs3,620 crore today) and Adani Group’s acquisition of Australian firm Linc Energy Ltd’s Galilee coal tenement for $2.7 billion.
Australia is the largest exporter of metallurgical coal and the second largest exporter of thermal coal. It offers better coal quality along with a sound regulatory environment, but valuation of the coal concessions and transportation costs are high.
According to the BP Statistical Review of World Energy, global coal consumption grew 7.6% to 250 million tonnes of oil equivalent (mtoe), with China and India increasing their consumption by 10.1% (54.1 mtoe) and 0.8% (27 mtoe), respectively.