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Doubts on Coal India’s coal reserves

September 13, 2010

“Coal India is set to begin a roadshow to promote what is expected to be India’s biggest stock listing, even as tightened environmental regulations and a Maoist insurgency threaten to render much of the state-owned miner’s reserves inaccessible. …

Coal India hopes to raise up to Rs150bn ($3.2bn) from the sale of a 10 per cent stake. That would make its initial public offering bigger than India’s largest completed listing, the $3bn offering of domestic electricity producer Reliance Power in early 2008. Coal India claims to be the world’s largest coal producer and accounts for 85 per cent of production in India, which has the fourth-largest reserves on the globe. But it recently revised down its annual production target from 520m tonnes to 486m tonnes, citing delays in environmental clearance for mine expansion. Meanwhile, Indian coal imports are surging, with KPMG estimating a domestic shortfall of 189m tonnes a year by 2015.”

Source: Financial Times, September 13, 2010

Observations:

  • The capital aimed to raise with the proposed IPO is $0.4bln higher than initially targeted. However, the uncertainty caused by changes in legislation have delayed the process by months since the rumours in June.
  • Coal India has 471 mines (March 2010) of which 273 are underground, 163 opencast and 35 mixed mines. CIL further operates 18 coal washeries, (12 coking coal and 6 non-coking coal). The many small operations are organized into 8 core geographical business units.

Implications:

  • A recent ruling on mining in areas populated by tribal people affected the plans of Vedanta to develop an iron ore mine in the state of Orissa. The Indian government is stepping up its efforts to protect the environment and human rights, changing the way many local mining companies have to operate. The amount of capital Coal India will be able to raise depends on the availability of its reserves in areas protected by these rulings.
  • Once a larger part of Coal India is made available to the public, large corporates in the Indian power industry and heavy industry (especially steel: ArcelorMittal, Reliance and Tata) are likely to acquire strategic stakes in the company to secure supplies.

©2010 | Wilfred Visser | thebusinessofmining.com

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