BMI View: State-owned miner Coal India Limited (CIL) is set to expand its mining footprint abroad as it seeks to spend more than US$6.5bn over the next five years in the acquisition and development of coal mining assets around the world. We expect southern Africa to prove the most attractive as the region is host to some of the world's largest undeveloped coal deposits, particularly in Mozambique, Botswana and Zambia.
In line with our view, the stellar portfolio of coal re serves in South Africa has attracted an increasing number of Indian companies to establish a foothold in the country's nascent mining sector (See our online service, 'The Coming Boom In India-Africa Mineral Investment' , December 7, 2012 ) . State-owned miner Coal India Limited (CIL) is planning to establish a South African mining arm with the aim of developing coking and thermal coal projects in the coal-rich African nation. The miner's proposed South African subsidiary would, in turn, form a joint venture company in a 74:26 partnership with the government of the Limpopo province. CIL has expressed little interest in acquiring coal mines outside India from private parties due to the conflicts that tend to intrude when a public sector company deals with a private company.
Aside from South Africa, CIL is set to spend more than US$6.5bn over the next five years in the acquisition and development of coal mines in countries such as Australia, Indonesia, United States and Colombia. Indeed, the growing shortfall of coal production in India has encouraged more domestic miners to embark on overseas ventures. Despite boasting the world's fifth largest coal reserves, coal consumption in India has continued to outstrip output over the past decade, to reach a structural deficit of 137mnt (million tonnes) in 2011 .
|Shortfall To Drive Overseas Investment|
|India - Coal Production, Consumption & Balance (mnt)|
India's Coal Chase To Continue
The recent announcement by CIL reinforces our conviction that India will remain heavily dependent on overseas purchases over the coming years. CIL, which accounts for more than 80% of domestic coal production, produced 436mnt of coal in 2012, against the targeted 447mnt. We expect coal to retain its primacy in India as the country undergoes rapid industriali sation and urbanisation, fuelling consumption in both coking and thermal coal. We forecast India's steel production to reach 121mnt by 2017 , with the construction industry accounting for the bu lk of incremental steel demand.
Apart from the delays in environmental clearances, vital regulatory and bureaucratic hurdles, we believe issues surrounding infrastructure bottlenecks and the lack of high-end technology for underground mining will continue to hinder development in the country's coal sector. Furthermore, it is estimated that only 16% of the 22bnt (billion tonnes) of coking coal reserves in India is hard coking coal, the majority of which are difficult to extract as they located in heavily populated areas. We expect southern Africa to receive much of the interest from Indian companies seeking to plug India's insufficiency in coal production. Mozambique has some of the largest coal reserves due to come online in the next few years and Botswana and Zambia have world-leading undeveloped resources of coal and copper. Furthermore, wi th the development of the ports in Durban and Beira, the region will have substantial capacity to export coal directly to India.
|Source: BMI, Company Reports|
|Coal India||Mozambique||Coal||Planning to invest US$400mn to develop two coal exploration blocks granted by the Mozambican government.|
|Coal India||South Africa||Coal||Proposing a memorandum of understanding with the South African government to establish a wholly-owned subsidiary for locating and developing coal mines.|
|Jindal South West Energy||South Africa||Coal||Bought 70% of South African company Indian Ocean Mining.|
|Jindal Steel & Power||Mozambique||Coal||Was awarded a 25-year licence to explore and mine coal in Tete province.|
|Tata Steel||Mozambique||Coal||The company has a 35% share in Australian company Riversdale Mining's Benga and Tete coal exploration licences.|
|Vedanta Resources||Zambia||Copper||Acquired a 79.4% stake in Zambia's Konkola Copper Mines (KCM).|
|Vedanta Resources||Namibia||Zinc||Bought Skorpion Zinc off Anglo American for US707mn.|
|Vedanta Resources||South Africa||Zinc||Bought Anglo American's 74% share in Black Mountain Mining project.|