Coal India plans to pick up 20-30% stake in Australian coal mining firm

Coal India is in talks with an Australian coal mining company to pick up a stake in the range of 20-30 per cent. If the deal materialises, it will ensure a steady supply of coking coal to Indian steel and allied companies.

The country’s coal giant plans to set up an office in Brisbane this year and the pact will mark its second foray into foreign shores, the first being in Mozambique way back in 2009. “We are in talks with a mining company in Australia and some progress has been made. But we are also keeping our options open to acquire mines directly. It will finally be worked out in accordance to which one is financially and operationally more feasible,” a senior Coal India official said adding that it can procure rights over coking coal, which can be supplied back to India at cheaper rates compared to global prices. Sources said an ad hoc amount of Rs 60 billion has been set aside to execute the deal and talks are also on with steel firms in India, mostly from the public enterprise sector, for sales commitments.

According to a second senior company executive, picking up a stake has worked out to be a more viable option for the world’s largest coal miner given its experience in Mozambique.

During its first tranche of global expansion, after it narrowed down on this African country, the Mozambique government in August 2009 granted Coal India licenses to explore and mine coal which led it to floating Coal India Africana Limitada (CIAL) as a subsidiary in that country. After it undertook a feasibility study, the miner concluded that it is technically not feasible for it to do any mining and subsequently, it surrendered some of the licenses previously granted.

The licenses covered a total area of 224 sq km and the study suggested that there was no coal till a depth of 500 metres in an explored area of 170 sq km for the remaining 54 sq km, however, Coal India had retained its mining licenses.

Thereafter, CIAL’s net worth turned a negative Rs 293.2 million and the parent company decided to shift the Mozambique office from Tete to Maputo City to economise costs and narrow down accumulated losses in that subsidiary.

Moreover, its maiden foreign venture had led CIAL to adhere to compliance issues in those foreign shores with the parent now trying to convert fund infusions in the subsidiary into equity to comply with certain provisions in the Mozambique Commercial Code.

A section of this code states that the net worth of a company cannot be less than 50 per cent of the issued capital failing which remedial measures will be taken.