Aditya Birla, Coal India, Shenhua to bid for Rio Tinto's Australian coal assets: report
11 Jun 2013
Aditya Birla Group, Coal India Ltd and China's Shenhua Group Corp Ltd are among companies planning to bid for some of Anglo-Australian miner Rio Tinto's Australian coal assets, valued at an estimated $3.2 billion, Reuters today reported, citing people familiar with the matter.
Rio Tinto, which generates four-fifths of its earning from iron ore, has put some of its non-core assets for sale in order to lower its debt and focus on its iron ore operations in Pilbara, Australia, and the Simandou mine in Guinea, which is currently under development.
Rio Tinto is selling its Australian coal assets just two years after it spent $4.1 billion in buying Mozambique-focused coking and thermal coal miner Riversdale Mining.
This acquisition proved to be a blunder as the London-based company had to write down $2.8 on its Mozambique assets after a downward revision of the recoverable reserves and infrastructure challenges in moving the coal to the port (See: Rio Tinto to cut costs by $5 bn after posting first annual loss of $2.9 bn).
Rio Tinto is now selling a 29-per cent stake in its Coal & Allied operations and its majority stake in the Clermont mine in Queensland state.
With preliminary bids due this week, Aditya Birla, Coal India and Shenhua would be the potential bidders for these assets, which are valued at around $3.2 billion.
Reuters, quoting analysts, said that Rio Tinto's stake in Coal & Allied could fetch around $1.7 billion while the Clermont stake could bring in $1.5 billion.
Coal & Allied in New South Wales operates three open cut mines in the Hunter Valley region, Bengalla, Hunter Valley Operations and Mount Thorley Warkworth.
These mines supplies international and domestic markets around 27 million tonnes of semi-soft coking coal and thermal coal annually.
Coal & Allied is 80 per cent owned by the Rio Tinto and 20 per cent owned by Mitsubishi Development.
The Clermont mine, located in central Queensland, supplies international markets around 12 million tonnes of thermal coal.
The deposit holds 177 million tonnes of thermal coal, and the mine has an expected life of 17 years.
Rio Tinto Coal Australia manages the operation on behalf of the joint venture partners. Rio Tinto holds 50.1 per cent, Mitsubishi with 31.4 per cent, J-Power Australia Pty Ltd holds 15 per cent and J.C.D. Australia Pty Ltd holds the remaining 3.5 per cent.
Indian firms have been scouting for coal assets in Australia, Indonesia and the African continent as demand is expected to more than triple in the next two decades as Asia's second-fastest growing economy seeks coal to generate electricity and run steel, cement plants.
The Aditya Birla group, which requires thermal coal for Hindalco, the country's top aluminium producer, and UltraTech Cement, the country's largest cement producer, has since the past two years been scouting for overseas coal mines.
In 2011, it was among the shortlisted bidders for Australian coal explorer Bandanna Energy and was reported to have tabled a bid for Australian coal miner Whitehaven Coal. It 2012 it entered into talks to buy a significant stake in the Colombian coal mines of Drummond Company, the largest merchant coke producer in the US.
Coal India has been called by analysts as a joker among coal mining companies. Although it is the country's and the world's biggest coal producer, it has been for the past three years been saying that it will do overseas acquisitions in order to make good the acute shortfall of coal in India.
With India's demand of coal outstripping supply, the country is expected to import 185 million tons of coal this year starting 1 April, which would see it overtake China as the world's biggest buyer of the raw material.
India's proven reserves are around 110 billion tons and are expected to last for more than 100 years, but most of the country's coals are high in ash content that increases production costs. The local supply is also hampered as coal projects require rigid environmental laws as well as delay in acquiring land.
Coal India, which raised $3.4 billion in October 2010, has since been saying that it is will acquire overseas coal blocks or sign offtake deals with major mining firms in Indonesia, Australia and the US.
Although in 2010 its board had armed it with a $2-billion war chest for overseas alliances and acquisitions, Coal India's top management has very often issued statements that it will soon make an overseas acquisitions.
Apart from two coal blocks that it acquired in Mozambique in 2011, CIL has failed to make acquisitions although other Indian companies like Lanco Infra, Adani Group, GVK, Tata Power, Monnet Ispat and Energy, Essar Power and JSW Energy, have spent billions in acquiring coal blocks in Australia, Africa, Indonesia, Latin America and the US.
