"Acquisition will call for an immediate huge investment which can be funded internally or through debt while partnering with an operational firm will reduce the immediate investment required," the Coal India official said.
As per analysts and former Coal India chairman, Partha Bhattacharyya, the second route, as of now, is the most feasible.
Bhattacharya said Coal Videsh can opt for picking up stakes in operational mining companies with an offtake commitment which will zero its operational risks.
Further, it is projected that it will be economically viable, only if Coal Videsh is able to procure or mine coking coal between $100-120 a tonne.
However, being a public sector enterprise, analysts predict that Coal India is unlikely to consider partnerships with other foreign mining companies. In such a case, Coal India will be limited to specific regions and have to forego some of the best coking coal reserves in Australia and Indonesia as the entire mining operation in those countries are privatised.
The company is scouting for assets in Australia, Indonesia, South Africa, USA and Colombia.
As per a second analyst, foregoing coal reserves in Australia and Indonesia will result in logistical disadvantage for the coal behemoth and Coal India will have to spend more by at least $5-10 per tonne to ship coal either from South Africa, USA or Latin America.
"We are presently looking at the legalities involved with the options," another Coal India official said.
The equity route is not new to Coal India but it is yet to taste success in this front. In August last year, Coal Videsh was close to signing a memorandum of understanding with the South African government controlled African Exploration Mining and Corporation, SOC Ltd. However, talks failed to finally materialise into a partnership.
Also in 2010, Coal India came close to signing a deal with the US-based Peabody Energy to acquire 10 per cent of its assets in Australia which had again fallen through. Bhattacharyya, who had led the initiative then, cited lack of clear guidelines as the main constraint.
Although Coal India has substantially raised its production of the non-coking variety of coal by 9.3 per cent in the last fiscal year at 484.93 million tonnes (mt), coking coal production increased by only 6.5 per cent at 53.83 mt. Out of the total production portfolio last year, coking coal comprised barely 10 per cent of the annual 538.76 mt of production.
Estimates put the average annual coal consumption by the steel sector at 50-60 mt which will rise to 180 mt by 2030; when the steel output is targeted to stand at 300 mt.
Under the given circumstances, Coal India, at its present best, can meet 30-35 per cent of the required coking coal.
Indian steel producers have been beating the brunt of higher coking coal prices recently. In January 2016, the coking coal prices hovered around $ 80 a tonne but rose sharply to $283 a tonne in December last year. However, it has fallen back to $193 a tonne in early January and sector analysts predict an average $150 a tonne to prevail this year.