Coal news and updates

ICVL buys coal mines in Mozambique for a bargain-basement price of $50 million from Rio Tinto

A consortium of Indian state-run firms has bought a bunch of once prized coal mines in Mozambique that changed hands for $3 billion in 2011 for a bargain-basement price of $50 million from global mining giant Rio Tinto. It also marks the first overseas deal of International Coal Ventures (ICVL) since it was set up in 2009 to buy mines abroad to secure the raw material needs of its members and the country's energy security.

The purchase of the Mozambique mines by Rio Tinto three years ago at the peak of the commodities cycle and subsequent value writedown was partly responsible for its former chief Tom Albanese's ouster.

ICVL is a joint venture between five public sector companies. The deal marks a rare success by Indian companies in acquiring natural resources in Africa, where more often than not, they have been outbid by their Chinese counterparts.

Not surprisingly, the Cabinet minister in-charge and PSU bosses hailed the deal.

"It is a big day for ICVL. This is just the beginning of acquiring more mining assets abroad. It (the mines) has got reserves of 2.6 billion tonnes with 70% coking coal. The asset is going to be useful for our domestic steel industry and is in line with expansion plans of steel sector," Union Steel & Mines Minister Narendra Singh Tomar told ET.

ICVL CEO Ajay Mathur and George Hartley, the director in charge of M&A at Rio Tinto, signed the agreement on July 28 in New Delhi though a formal announcement was made only on Wednesday coinciding with a divestment by Rio of some Mongolian assets. ICVL has 60 days to make the payment. Besides SAIL, ICVL's other owners are power major NTPCBSE -0.07 %, Coal IndiaBSE 0.71 %, state-owned miner NMDCBSE -1.13 % and South-based steel-maker RINL.

ICVL had bid for these coal mines in 2011 too but was outbid by Rio Tinto, with, as it turns out, disastrous consequences, for the latter. ICVL will own 100% in the Mozambique-based holding  company as well as two of the three mines.

Of the three mines, Benga with reserves of 236 million tonnes is already operational with Tata SteelBSE 2.50 % having a 35% share of production. Two other greenfield projects, Zambeze and Tete, have proven reserves of 1,984 million tonnes and 260 million tonnes, respectively.

The $50-million payment will be followed by an investment of around $1 billion to ramp up production over 3-4 years. ICVL plans to raise capacity of the Benga mine from the existing 5 million tonnes to 12 million tonnes in the first phase.

In the second phase, the capacity will rise to 16 million tonnes, making it one of the largest coal mine projects in the world. "ICVL will also have to invest in buying rolling stock while the Mozambique government augments railway infrastructure and coal jetty at the Port of Beira. We need RBI approval for the deal," Verma added.

Compared with the US and Australia, where Indian companies have been scouting for coking coal, Mozambique scores favourably as it is closer to India. This acquisition also gives domestic steel companies a strong foothold in a much sought-after coal producing area.

The operating coal mine comes with a state-of-the-art wash plant and surface infrastructure.

The Mozambique deal comes barely a day after the Adani Group received environment clearance from the Australian government for its Carmichael project, billed as Australia' largest coal project.

The two developments also mark India as a serious contender in the international coal market.

The Mozambique coal resource, which contains both coking coal and thermal coal, will provide long-term captive source of critical raw material for Indian steel companies such as SAILBSE 1.14 % and RINL, which are expanding capacity to 23 million tonnes and 6.3 million tonnes, respectively, and also for NMDC's upcoming 3-million tonne steel plant at Nagarnar in Chhattisgarh. Together, their requirement of coking coal will go up to 25 million tonnes per annum.

These coal mines are located in the prime coking coal-bearing region of Moatize Coal Basin, the second-largest coal basin in the world after the Bowen Basin in Australia.

Interestingly, with the ICVL acquisition, the Mozambique coal properties will have complete Indian ownership. "We have very good relations with the Tatas. We already have two joint ventures with them in India. We couldn't have asked for a better partner at the Benga mine," Verma said. ICVL will have to incorporate a new company which will take over the assets at Mozambique.

The transition from Rio will happen over the next two years.


nvestec Bank, London, was the financial advisor to ICVL for the deal. The coal mines were acquired by Rio Tinto from Riversdale Mining in 2011. Since then, the coal mine at Benga has been brought to production.

Completed in 2011, the Riversdale acquisition contributed to the exit of former Rio Tinto CEO Tom Albanese within two years, when the assets were impaired by $3 billion.

With coal prices falling even further since, the assets have lost nearly twothirds of their value in just over three years.

Source: The Economic Times