Like iron ore, coal is a raw material that’s been under scrutiny in India for a while now.
Coal mines, like their iron ore counterparts, are mired in controversy in the world’s largest democracy. They are caught in a bureaucratic quagmire, forcing some private steel companies to buy mines abroad to meet their needs. Five years ago, the Government of India had banded together five state-run firms to form a joint venture company called the International Coal Ventures Ltd (ICVL) for securing metallurgical coal and thermal coal assets in overseas territories.
After a delayed start, the consortium is finally getting its act together. Late last year, there was talk in the Indian media of the ICVL looking to buy captive coal assets in Australia, the USA and Poland, but now it looks like it’s zeroing in on three mines belonging to Rio Tinto in Mozambique.
The media here has reported that the ICVL has finished its due diligence, and is likely to submit a $200 million bid within a fortnight to acquire the mines. Rio Tinto Coal Mozambique holds a 100 percent stake each in the Zambeze and Tete East projects, and a 65 percent in the Benga Mine. Incidentally, India’s largest private steel conglomerate, Tata Steel, holds the remaining stake in Benga.
The mines have estimated reserves of around 200 million tons of both coking and thermal coal.
A high-level team of ICVL officials is said to have visited the African nation last June for final due diligence. Rio is looking to exit Benga, which it acquired in 2011 as part of its Australian $3.9 billion (approx.US $3.7 billion) purchase of the Sydney-based Riversdale Mining Ltd.
The Benga mine, which started commercial production in the third quarter of 2012, has been working to cut operating costs and increase productivity, Rio said in its latest annual report. However, if the lackluster track record of the ICVL is anything to go by, Indian steel analysts may want to wait to see the Mozambique deal inked before they break out the bubbly.
The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.