Coal India's quest for coking coal takes it to South Africa

World’s largest coal miner Coal India’s hunt for coking coal is taking it overseas. The company’s subsidiary Coal Videsh is on the lookout to acquire mines in South Africa, which has huge reserves of coking coal.

The company’s Board has approved signing of a memorandum of understanding (MoU) with the South Africa government-controlled African Exploration Mining and Finance Corporation (AEMFC).

“The areas of collaboration include identification, acquisition, exploration, development and operation of coal assets in South Africa,” a Coal India official said. Coal India and AEMFC may also float a joint-venture company for this purpose. “The finer details are being worked out but we first need to look into the scope before narrowing down on any acquisitions,” the official added.

Although Coal India has raised production of non-coking coal by 9.3 per cent in the last fiscal year at 484.93 million tonne (mt), coking coal production went up by only 6.5 per cent at 53.83 mt. Coking coal comprised only 10 per cent of Coal India’s annual production of 538.76 mt.

Non-coking coal is primarily used by thermal power plants while coking coal is used by industries like steel and cement. Indian steel sector consumes 50-60 mt of coking coal annually, which is poised to rise to 160 mt by 2030. Most of steel industry’s requirement for coking coal is met by imports.

Once Coal India secures supply of coking coal from South Africa, India’s forex outflow will come down. That’s not it. Coal India can also export a part its produce in South Africa to international markets.

According to an analyst with Motilal Oswal, softened international prices make it the “right time” for such acquisitions. He, however, opined that Australia would have been a better destination for coking coal. “Coal India would have got a freight cost advantage if it mined from Australia instead of South Africa. When international prices have softened, making it a good time to acquire assets, the company could have opted for Australian assets rather than African ones,” he said.

This is not the first time Coal India is venturing into overseas acquisitions. Six years back, Coal Videsh floated a subsidiary Coal India Africana Ltd (CIAL) to acquire coal blocks in Mozambique.

However, out of the allotted two coal blocks across 224 square kilometres, Coal Videsh surrendered 170 square kilometres to the Mozambique government due to non occurrence of coaly horizons till a depth of 500 metres. Left with only 54 square kilometres, Coal India found the project unfeasible. CIAL may soon wrap up its Mozambique operations and concentrate on South African mines.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel