India’s ICVL Zeroes in on Rio Tinto’s Mozambique Coal Mines

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In part one of this report, Sohrab Darabshaw explained how five years ago, the Government of India banded together five state-run firms to form a joint venture company called International Coal Ventures Ltd (ICVL) for securing metallurgical coal and thermal coal assets in overseas territories. This report details ICVL’s recent attempts to acquire mines in Mozambique.

A high-level team of ICVL officials has reportedly visited Mozambique in late June. Rio Tinto is looking to exit its Benga mines, which it acquired in 2011 as part of a $3.7 billion purchase of the Sydney-based Riversdale Mining Ltd. The Benga mines, which started commercial production in the third quarter of 2012, have been working to cut operating costs and increase productivity, Rio Tinto said in its latest annual report.

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But if the lackluster track record of the ICVL is anything to go by, Indian steel analysts may as well wait to see the Mozambique deal inked before they break out the bubbly. Within a mere two years of its formation, the company nearly shut down after the Indian Government had sent out confusing signals on coal acquisition from foreign nations.

In the five years since its formation, the ICVL has been desperately scouting for international coal mines, without success. The Mozambique story itself has been playing out for almost two years, although it does look like it’s finally bearing fruit.

A similar story around Polish mines started unfolding late 2013. ICVL officials were quoted in the media between January and March year saying they were close to clinching ICVL’s maiden deal, and were “in the advanced stages” of acquiring a coal asset in Poland. Poland has around 16.9 billion tons of hard coal reserves, mainly located in Upper Silesia and in the Lublin basin. Nearly 44 percent of the reserve is coking coal.

The ICVL was said to be very serious about acquiring this mine,and had appointed a technical consultant, but after media statements about the mine’s due diligence, not much was heard afterward from the ICVL. At all.

International coking coal prices could be one factor which could have been be a hindrance in the earlier proposed acquisition, though no one within the ICVL has officially admitted it. ICVL now seems gung-ho on the Mozambique mines this time around, since the price of coking coal has slipped to about $132 per ton from its peak of $350 a ton two years ago. Lower raw material prices also means lowering of asset prices, analysts say.

The ICVL was formed initially with five state-run companies including the Steel Authority of India (SAIL), the National Thermal Power Corporation and the Rashtriya Ispat Nigam Ltd. The latter depends entirely on coking coal imports to meet its demand, while SAIL imports 75 percent of its coking coal needs from abroad.

India’s steel sector, one of the heaviest users of coal, imports about 30 million tons of coking coal now. With steel demand expected to grow in the short-term, the demand for this raw material, too, is expected to rise, and it is in the interests of the ICVL’s constituents that the Mozambique deal is actually signed. Finally.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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