State-run International Coal Ventures Pvt. Ltd (ICVL) has submitted a bid valued at about $200 million (Rs 900 crore) for a 12% holding in Anglo American Plc’s Grosvenor mine in Australia, putting it in competition with at least three other companies, including Chinese firms, for the stake.
Grosvenor is a greenfield mine with production expected to increase by 4.3 million tonnes per annum (mtpa) till it reaches full production in 2016.
ICVL’s bid values the mine owned by one of the world’s top 10 mining companies at around $1.6 billion.
“We had cleared the first round and in the second phase placed the price bids (for the coking coal mine),” said a top ICVL executive, who did not want to be identified.
Anglo American declined to comment on investor interest in the project or any bids it may have received for it.
“Our only asset actively on the market in Australia is our Callide thermal coal mine, though we do regularly hold discussions with steel customers to explore ways in which they might add value to projects,” the firm’s spokesperson said in an email.
ICVL was set up by five state-owned firms—NTPC Ltd, Steel Authority of India Ltd, Coal India Ltd, Rashtriya Ispat Nigam Ltd and NMDC Ltd—to secure coal assets overseas and has been competing with leading Chinese coal miners such as China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd, which are actively engaged in acquiring mining concessions overseas.
A second ICVL executive said the bid was placed 1 February.
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, emerging as a major source of India’s mineral imports, is the largest exporter of metallurgical coal and the second largest exporter of thermal coal in the world.
“The demand for metallurgical coal will continue to rise in light of growth expected in the steel sector, which will widen the gap from domestic supply and enhance import dependence,” said Dipesh Dipu, director (consulting, energy and resources, mining) at Deloitte Touche Tohmatsu India Pvt. Ltd.
“This, along with the stiffening of prices, and more so their volatility, have compelled steel companies to grab resources wherever they occur. Investments, even in minority stakes, may provide supply securities although price preferences may be elusive in such cases,” he added.
Bids by Indian miners tend to be relatively uncompetitive, analysts say. That’s because most Indian companies seek the coal for their own end-use projects, while rival bidders may have higher-margin alternative plans.
“Strategy of backward integration may be justified as costs of raw materials now account for close to 65-70% of the total cost of production of crude steel,” Dipu said. “Therefore, competition to acquire metallurgical coal assets has been heating up.”
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 mtpa and set to touch 2,340 mtpa by 2030.