Hindalco may buy Australian coal mine for Rs 385 crore

FALL IN COAL PRICES GLOBALLY HAS HELPED CO LOOK AT ACQUISITION

HINDALCO Industries is close to acquiring a coal mine in Queensland, Australia, in a deal estimated at $70-$80 million (about Rs 336-385 crore).

The flagship of the Aditya Birla group, which has been scouting for coal mines in Queensland for some time, is reliably learnt to have shortlisted one mine in the region with reserves of around 120 million tonnes, said people close to the development.

A Hindalco spokesperson declined to comment.

Although Hindalco has been scouting for a coal mine in Australia for some time, this is the right time to make a purchase mainly as coal prices have fallen sharply. Compared to October last — when the financial crisis started — the coal prices have fallen by about 50%, making the acquisition possible.

BHP Biliton, the world's largest mining company, has agreed to a 58% reduction in its annual contract prices for coal supplies to steelmakers, mainly due to the reduction in demand. Coal is one of the key raw materials used in the steel industry, especially for units making steel through the blast furnace route.

Although it isn't yet clear, Hindalco is likely to be assisted in the acquisition by group company Essel Mining. When contacted, Essel Mining managing director Ravi Kastia declined to comment on specific deals, but said that this is the right time for any resource acquisition. "Commodity prices are down; hence it's much cheaper than, say, 6 months back. Also, funding for companies in the western world is still difficult, making mining assets a good target for large overseas companies," he added.

Mining companies that were acquired three to four years back, are now finding it difficult to raise finance for expanding their activities, mainly due to the tight liquidity situation overseas. This is prompting most such junior mining companies - as they are called in mining parlance - to sell their assets to larger companies.

The coal mined in Australia is likely to be shipped to India for use in Hindalco's smelting operations, said people with knowledge of the development. In Orissa, Hindalco has planned to increase its aluminium refinery capacity to 1.5 million tonne, from 1 million tonne and smelter capacity from 26 million tonnes to 72 million tonnes. The company has also proposed to enhance the capacity of its captive power plant from 650 MW to 1,650 MW.

Coal is typically used for generating thermal power, which is then used for smelting aluminium. Electricity accounts for about 45% of the total cost of an aluminium smelter.