Coal news and updates

NMDC may buy stake in Indonesian coal mine

State-owned NMDC is considering a stake in an Indonesian thermal coal mine owned by Renuka Coalindo, an acquisition aimed at expanding the profile of the minerals producer that has been focused mainly on iron ore and coking coal.

Confirming the development, two directors of NMDC told ET on the condition of anonymity that the company was evaluating PT Renuka Coalindo Tbk, listed on the Indonesian stock exchange, which operates a 1.2 mt coal mine in the Jambi province of Sumatra. The company is a subsidiary of Renuka Energy Resource Holdings, an associate of Renuka Sugars, with mineral concessions in Columbia and Brazil as well.

 "Such a proposal did come to us and the subcommittee has asked for a technical due diligence of the project," said another board member of NMDC. The mine is of strategic interest given monopoly miner Coal India's obligation to its clients, said a person close to Renuka Coalindo, adding that several private and public sector enterprises had evinced interest in the asset.

When contacted, Renuka Coalindo's president director Ganesh Mane declined to comment on the matter. Questions mailed to CS Verma, acting chairman of NMDC and chairman of Steel authority of India, also went unanswered.

The Indian consortium of state-owned steel and coal companies, which has both NMDC and SAIL as members, had set up an office in Indonesia expecting coal mines two years ago in central Kalimantan where it had volunteered setting up a steel plant.

NMDC, India's leading iron ore miner, has so far been known to be scouting for iron ore, coking coal and potash assets in the interest of the country's raw material security since India is deficient in the latter two minerals.

Eyeing a thermal coal project in Indonesia seems unusual, observers said. Explaining the rationale for the move, a senior steel ministry official said, "NMDC is a mining company, not simply an iron ore company.

Ultimately it must work towards becoming a mining giant like BHP, which mines all kinds of minerals."

Given the softer prices, it would appear the time is right for acquiring overseas thermal coal assets, but there's a risk whether buyers can really extract value or they will be hampered by new regulatory restrictions in Indonesia, such as potential export restrictions, additional taxes, local consents etc.," cautioned Kameswara Rao, executive director (energy, utilities & mining) at consulting firm PwC. He added that it might make more sense for Indian state-owned companies to get into partnerships with domestic private firms that had already invested heavily in mines and associated infrastructure for transportation. "This would also help achieve more pricing stability as both could benefit from a deal structured in rupee rather than the US dollar," he said.

Renuka Coalindo acquired the Jambi Prima Coal mine in November, 2011.

It has been impacted by a "tough 2012-13", according to the company's annual report. "The fall in demand from China has resulted in significant drop of commodity prices across the board; thermal coal in fact has been one of the worst performers. The challenging macro environment has turned most of the companies into red including ours," the report says.

Unlike many of its peers in the region, though, Renuka Coalindo cut costs, established reserves and remained operational. Jambi Prima Coal has reserves of 92mt and its operational capacity can be scaled up to 4-5mt, according to officials.

Source: The Economic Times