Coal India Studying Five Overseas Mine Acquisitions (Update2)

By Rakteem Katakey and Rajesh Kumar Singh

Nov. 26 (Bloomberg) -- Coal India Ltd., the world’s largest

producer of the fuel, is studying the acquisition of five mines

in the U.S., Australia and Indonesia to meet the country’s

demand for the fuel, Chairman Partha Bhattacharyya said.

The state-owned company is examining a mine in Australia

owned by Peabody Energy Corp., one in the U.S. owned by

Massey Energy Co. and another in Indonesia,

Bhattacharyya said, declining to name the third company.

While Coal India hasn’t started due diligence on two more

mines in Australia, it may appoint banks soon to evaluate

offers, he said.

“We are narrowing the gap of valuations with Peabody,” Bhattacharyya, 59, said in an interview in

New Delhi yesterday. “We would like to invest because there are companies which want money for

their mines or a market for their coal,” he said. “We have the money and there is a big market

here.”

The Kolkata-based mining company has 380.5 billion rupees ($8.3 billion) in cash for acquisitions as

consumption rises in Asia’s second-biggest energy consumer. India’s annual coal demand will exceed

output by 100 million metric tons in four years and Coal India aims to meet half the shortfall from

overseas mines, the chairman said.

“It’s absolutely critical not just for the company but also for the country,” said Jagannadham

Thunuguntla, chief strategist at SMC Global Securities Ltd. in New Delhi. “From a macro-economic

standpoint, it is very important for India to have control over natural resources and Coal India is a

trump card for the government.”

Indonesia Venture

Bhattacharyya said Coal India may also begin talks with the Indonesian government in January on a

proposed venture with state-owned miner PT Tambang Batubara Bukit Asam.

At the last meeting of an Indonesia-India working group “we had suggested Bukit Asam is a

government-owned company, and if certain blocks can be operated jointly by forming a venture,” he

said. “They have said in the next meeting they will bring up something. That’s likely to be in

January.”

Coal India fell 0.2 percent to 312.70 rupees at the close in Mumbai trading as Indian stocks

declined, dragging the benchmark Sensitive Index 0.9 percent lower. The stock has gained 28

percent since the government sold a 10 percent stake in the company at 245 rupees a share last

month in India’s largest initial share sale.

Of 20 analysts that cover Coal India, 16 recommend buying the stock and one recommends selling.

IPO, Output

Prime Minister Manmohan Singh raised 152 billion rupees from the IPO in October, offering the

stock at a discount to global peers. India’s economy grew at the fastest pace in more than two years

in the three months ended June 30, spurring energy demand.

Coal India and its units, which account for 82 percent of the nation’s production of the fuel, posted a

29 percent increase in net income to 40.2 billion rupees in the six months ended Sept. 30, the

miner said Nov. 23. The miner has 17.1 billion rupees of loans outstanding, payable through 2044,

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according to Bloomberg data.

“Coal asset prices may go up in future because of rising demand from India and environmental

constraints, which are likely to hamper production,” said K.K. Mital, a New Delhi- based fund

manager with Globe Capital Market Ltd. “So, now is the right time for Coal India to make these

acquisitions, if they come at the right price.”

India’s government has pledged to provide electricity nationwide by 2012 and needs to increase

installed generation capacity to 200,000 megawatts to sustain economic growth, according to the

power ministry. More than half of the current capacity of 167,278 megawatts is fueled by coal.

Coal demand in India may more than triple in the next two decades to 2 billion metric tons, Coal

Minister Sriprakash Jaiswal said Sept 24. India produces 530 million tons of coal a year and

imports about 67 million tons, the minister said.

Coal India has proven reserves of 52.55 billion tons, of which 21.75 billion is extractable, according

to the IPO document.

To contact the reporters on this story: Rakteem Katakey in New Delhi at

rkatakey@bloomberg.net; Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net.

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

Last Updated: November 26, 2010 06:35 EST

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