Indian firms hungry for SA mines

2010-03-09 07:21

Mumbai - Indian steam coal end-users have stepped up their hunt for South African junior coal mines in a bid to secure supply from this year if possible but are finding attractive assets scarce, would-be buyers said on Monday.

Indian companies including the Jindal Group, Essar and a host of traders have looked at every junior coal producer with a view to buying during the past three years.

They have also scoured Indonesia, Australia and the US for likely coal assets.

These end-users' desire to acquire mine assets has become more urgent because their coal demand is set to more than double in a few short years.

The reliable delivery, relatively high energy-content and low ash content of South African coal have made it a preferred choice of many Indian end-users.

"Our coal demand for power plants will be 10 million tonnes by the end of 2010 and double that again by 2014. We intend to be a coal producer," said one executive who asked to remain anonymous.

Having become accustomed to the quality of South African coal but often squeezed by strong international prices, Indian end-users have decided to enter mining.

"South African cash costs are only $35 a tonne compared with market prices of $82 to $85 a tonne FOB Richards Bay," another end-user said. "Obviously it makes sense, it is cheaper, to supply coal from your own mines," he said.

But only one deal has been struck for a mine which was swiftly re-sold to an Australian consortium because there was no rail link to move the coal to port.

"We are looking at every South African coal company of a small to medium size but we want mines with good rail logistics and costs," he said, in an office filled with maps and presentations on the South African coal industry.

Right time

On the face of it Indian asset seekers have chosen the right time to make a move into South African mining because several of the junior producers are either up for sale or informally welcoming offers, South African industry sources said.

Junior miner Umcebo is to be sold via a tender process overseen by Nedbank; Black Gold executives have discussed the potential sale of their mines with Indian buyers; Xstrata is set to dispose of its old, high-cost Spitskop and Silentis mines later this year, Indian buyers said.

Gas Nacional's stake in Kangra will also be put on the block because it does not fit the group's core gas and power business, Indian end-users said.

However, it would not be simple for Indian firms to buy these mines. Many of them such as Kangra have pre-emptive rights attached, giving other shareholders first right to purchase.

Others are likely to be sold to companies which have an existing connection to the seller.

Still others are over-valued despite having good logistics, industry sources said.

"They're chasing ghosts," one industry source said.

Indians took over 18 million tonnes of coal out of South Africa's 61 million exports in 2009, a percentage which is set to rise this year.

Several Indian companies have opened offices in Johannesburg to try and accelerate the purchase of coal assets and more are likely to do so.

"I am moving to Johannesburg this year. Maybe before the World Cup," the first end-user said.

- Reuters