Coal India makes strong debut on listing

INVESTOR appetite for the world’s largest coal miner pushed up its shares by 40% on its first day of trading after floating a 10% stake on the Mumbai stock exchange for $US3.4 billion.
Coal India makes strong debut on listing Coal India makes strong debut on listing Coal India makes strong debut on listing Coal India makes strong debut on listing Coal India makes strong debut on listing

Courtesy Coal India

Lou Caruana

Coal India has extractable coal reserves of more than 22 billion tonnes and holds 80% of India’s coal supply from 471 mines. It is larger than China giant Shenhua Energy and the world's largest privately owned miner, Peabody Energy, which is based in the US.

The rise in Indian coal demand at 10% a year is outpacing growth in domestic production, with production by Coal India rising at only 7% because of delays over environmental issues at 17 of its projects.

Coal provides for more than 50% of India's total energy use and consumption is expected to grow exponentially as the country develops its steel and cement manufacturing industries.

Analysts are now expecting Coal India to raise prices for its coal, which are at a 63% discount to global prices, a move that would make imported Australian coal more attractive.

Funds raised from Coal India’s initial public offering could be used to buy a stake of the coal assets in Queensland’s Galilee Basin acquired by Indian importer Adani Enterprises, as the company seeks to overcome India’s 60 million tonnes per annum thermal coal shortage.

Adani, which recently opened its Australian headquarters in Brisbane and with Hancock Coal is exploring a 500-kilometre rail link to ports, has reportedly been in talks with Coal India for a long-term supply agreement that could include equity participation in its Australian projects.

Times of India reported that sources close to the development say a long-term pricing agreement will be worked out for outright purchase of coal. As per the arrangement, coal will be supplied using Adani infrastructure – shipping and ports.

Adani, which is India’s largest coal importer, earlier this year purchased Linc Energy’s exploration projects containing 7.8 billion tonnes of thermal coal in the Galilee Basin in a $750 million deal, and other Indian players are keen to secure assets there.

Adani’s total Galilee mine, rail and port project is expected to cost $7 billion, produce 60Mtpa of thermal coal, and employ 5000 people during construction and operation.

India’s insatiable need for power means that companies like Adani – which has a combined market capitalisation of $30 billion – regard Queensland as offering strategic value.

It is prepared to develop and own a dedicated coal terminal at Dudgeon Point, near Dalrymple Bay, rather than lease out capacity at the Queensland government-owned Abbot Point.