INDUSTRY UPDATES - 13/06/2013

Coal India signs non-disclosure pacts with Australian mines




Coal India Ltd has signed non-disclosure agreements with mine owners in Australia as it pushes forward with the process of buying overseas assets, the company chairman said on Thursday.“We are going through the process. In fact, we have signed two to three non-disclosure agreements in Australia,” Coal India chairman S. Narsing Rao said in a phone interview from Kolkata.



Rao said some of the mines under consideration have the capacity to produce 10-15 million tonnes of coal a year and the company wants to take a quick decision, “otherwise they may get clinched (by others).”



Coal India, the world’s largest coal mining company, has a war chest of as much as Rs.35,000 crore that can be used to acquire overseas mining assets with domestic expansion constrained by obstacles related to environment, land acquisition and civil liberties.



A number of international assets are up for sale as the cost of production at mines has risen, while coal and iron ore prices have declined and the prices of finished products such as metals have remained low.Analysts and company executives say coal assets are up for sale in Australia, the US, Africa and Indonesia and, with their hunger for energy sources, China and India seem to be the only prospective buyers.



“It is a good business move as it is prudent to diversify geographically,” said Deven Choksey, managing director of KR Choksey Shares and Securities Pvt. Ltd. “Buying minerals in Australia will be all the more welcome.”This marks another attempt by Coal India to buy
assets overseas after failed talks with Massey Energy (acquired by Alpha Natural Resources) and Peabody Energy and Indonesia’s Sinar Mas in 2010-11 even after due diligence was conducted.



Rao said Coal India is considering 15 proposals out of the 32 that it has received, without giving any details.

The company is looking at buying equity stakes for production sharing or even majority ownership in the assets, most of which are for thermal coal.



“We have rejected one proposal based on minority equity participation,” he said.

There are no targets and the company is cautious. “It is difficult to say whether it will get clinched or not,” Rao said.

Coal India’s only overseas operation is a set of mines in Mozambique’s Tete province, which the company acquired in 2009 in a government-to-government deal.



“We have just finalized the second phase of detailed exploration for drilling up to 30,000 meters,” Rao said. “We have already done 10,000 metres (of exploration in Tete).”“Thereafter, we would take a view on whether it has a high or low profitability,” he said, adding that a recent media report stating Coal India may give up on the Tete mines is “baseless”.

The company has taken a small risk with its investment of Rs.15 crore so far, and would need to invest Rs.45-50 crore in the next couple of years in Mozambique, he added.



The hurdle is a 500km railway line that has to be built for a link to the port and Coal India is in informal talks with companies for sharing the cost of the infrastructure spend.The company has a horizon of four-five years “at least” before the mines reach production stage, Rao added.Coal India and the Sensex were little changed on Thursday.



Over the past one year, Coal India shares have risen 0.48%, while the Sensex has gone up by 18.63%.Choksey said the asset purchase plan at this point may be a strategy of the government to burnish Coal India’s image as it is about to embark on an offer for sale (OFS) of equity.“Any investor loves to see growth plans of a company,” Choksey said.

Choksey said the pricing of the OFS would generate more interest in the near future among investors rather than asset purchases, which are for long-term gains.



BC Iron on track for 2014 production



AAP reported that iron ore miner BC Iron is on track to hit its 2014 full production target as the price of iron ore hovers just above USD 110 per tonne.



The Pilbara focused player said that its joint venture production target remains at 6 million tonnes per annum with BC Iron's share scheduled to be 4.5 million tonne per annum for fiscal 2014.



BC Iron's products are hauled and shipped by Fortescue Metals Group's The Pilbara Infrastructure. JV production guidance for fiscal 2013 is on track to be 5 million tonnes with BC Iron's equity share to be 3.2 million tonnes.



Mr Morgan Ball MD of BC Iron said that the company continued to have a robust balance sheet and conservative gearing. BC Iron has outperformed other mid-tier ASX-listed iron ore companies on a total shareholder return basis since July 2012.



Mr Ball said that the iron ore spot price remains volatile and would not always reflect the macro picture. Current global steel intensity levels would continue to support future growth.

sugar firm on bright demand outlook



Sugar prices ruled firm at upper level on Wednesday. Higher demand from stockists pushed up mill tender rates by Rs 10 while ease in retail demand due to rains in physical market kept naka and spot rates unchanged.

Futures prices were up by Rs 5-10 on a positive outlook for demand in the coming months. Under current was firm, said sources. A wholesaler said “chances of hike in import duty on sugar, possible 10 per cent drop in sugar production next season and any time buying by State Governments for public distribution systems weigh on overall sentiments.

Production of sugar in 2012-2013 is almost over and now market has to depend on whatever inventory held with producers and stockists.

In the Vashi wholesale market, sugar arrivals continued to be at 65-66 truck loads (each of 100 bags) but local dispatches were restricted to about 60-62 truck loads due to rain.

On Tuesday, about 15-16 mills sold 85,000-90,000 bags to local traders at Rs 2,940-3,010 (Rs 2,940-3,000) for S-grade and Rs 3,000-3,110 (Rs 3,000-3,100) for M-grade.

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