Coal India to Access 15 to 20 Overseas Coal Mines with $2 Billion Investment

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Coal India Limited (CIL) (Kolkata, West Bengal), India's largest coal producer, plans to access 15 to 20 coal mines across Indonesia, Australia and the United States through six investment proposals, with a combined investment of up to $2 billion.

Some of these mines will be developed by CIL in partnership with international mining firms such as Peabody Energy Corporation (NYSE:BTU) (St. Louis, Missouri) and Massey Energy Company (NYSE:MEE) (Richmond, Virginia), while others are operating coal blocks in which CIL will acquire equity stakes to procure committed coal supplies. Rio Tinto Limited (NYSE:RTP) (Melbourne, Australia) and Hancock Prospecting Pty Limited (West Perth, Australia) are among the Australian miners reportedly in talks with CIL.

In July 2009, CIL embarked on a competitive bidding process and invited expressions of interest from global mining companies based in Australia, Indonesia, South Africa and the US for a strategic partnership to undertake joint initiatives in coalmining. Over 100 mining firms had reportedly evinced interest in the proposed partnership. CIL subsequently identified nine investment proposals. Global mining giants Rio Tinto, Peabody Energy, and PT Bumi Resources Tbk (OTC:PBMRF) (Jakarta, Indonesia) were reported to be on the shortlist.

The board of CIL decided to pursue the two best investment proposals each in Indonesia, Australia and the U.S., giving the firm access to a total of 15 to 20 coal mines across the three nations. Due diligence on these proposals is scheduled to commence shortly. Partha S Bhattacharyya, the chairman of CIL, said that the due diligence exercise would be concluded soon as the firm is in talks with "highly credible partners," and expects to finalize deals within six months.

Coal supplies from these mines are likely to begin in the next fiscal year, and CIL will import about 500 million tons of thermal coal over 10 years. The firm expects to procure supplies at a substantial discount to international spot prices. Bhattacharyya estimated that under this arrangement, even if the landed cost of coal imports were less than the international spot prices by $10 per ton, it would translate into annual savings of about $500 million for imports of 50 million tons per year.

While analysts are optimistic that securing committed coal supplies from mines overseas could result in substantial savings for Indian firms, they have also pointed out that CIL's proposed undertaking could encounter supply-side constraints. According to Kameswara Rao, India's leader for energy utilities and mining at PricewaterhouseCoopers LLP (New York), CIL could come up against bottlenecks at international ports, and overseas miners may expect the firm to invest in transportation and logistics as well.

During April to December 2009, CIL and its subsidiaries produced 297.5 million tons of coal, compared to 275.7 million tons over the same period the previous fiscal year. However, the firm is likely to miss its target of producing 435 million tons of coal for the ongoing fiscal year, April 2009 to March 2010. CIL attributes this slippage to delays in procuring clearance from the Ministry of Environment and Forests for its expansion projects. About 17 projects, with a total production capacity of 101 million tons per year, are yet to secure clearances. Consequently, CIL has also revised its production target for 2011-12 from 520 million tons to 486 million tons.

In a recent interview with CNBC-TV18, Bhattacharyya said that demand for coal in India is expected to grow at an annual rate of 10% in the short term due to accelerated capacity augmentation in the country's power sector. While CIL is expected to register an annual growth of 6% to 6.5% in production, captive coal producers are expected to augment production at a faster rate as more players are foraying into this segment and existing players are ramping up individual production capabilities. Overall, domestic production is expected to lag behind demand, with an estimated growth rate of not more than 7.5% per year, making it imperative for India to bring in coal from overseas mines on more economical terms than traded prices.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project spending opportunity databases, market forecasts, high resolution maps, and daily industry news.