India is on a coal buying spree. The big Asian nation is scrambling to cover an expected shortfall in domestic supply.
While Indian cement maker Gujarat Ambuja is seeking 200,000 tonnes of South African coal for late Q4 shipment, Australian firms Rio Tinto and Gina Rinehart's Hancock Prospecting are looking to sell state-owned giant Coal India stakes in thermal coal mines.
Coal India, the world's biggest coal miner, aims to import 50 million tonnes of thermal coal a year from Australia, Indonesia and Mozambique from 2016-17 to cover a forecast increase in demand for power, chairman Partha Bhattacharya said.
India imports Australian coking coal for its steel mills, but it takes only a fraction of Australia's 130 million tonnes a year of thermal coal exports.
Hancock, which is in the early stages of studies to build two large-scale Queensland thermal coalmines, and Rio, are understood to be among a number of Australian miners that have submitted expressions of interest to sell stakes in mines and projects to Coal India.
In July, Coal India said it would make rapid acquisitions of coal resources in major exporting countries as it looked to plug a potential 200 million tonnes a year shortfall by 2012.
India's 11th five-year development plan aims to provide all villages and houses below the poverty line with power and to boost economic growth to 10 per cent by 2011-12.
Bhattacharya said he planned to have a deal with one or more Australian miners within a year. He would not indicate what funds he had at his disposal.
Coal India is entertaining all levels of deals, from minority stakes in mines to becoming an operator and is said to be reportedly chasing stakes in large-scale mines of 10 million to 15 million tonnes a year.
The firm is also said to be eyeing acquisition of a mid-sized thermal coal block in Australia. This is in addition to the recent offers from a number of prospective 'strategic partners.'
Expression of interest
CIL has already received 15 expressions of interests (EoI) from Australia for strategic partnership. Apart from Australia, the company received 18 EoIs from Indonesia, 6 from South Africa and 13 from the US.
We have received a total of 52 EoIs. Of the same 45 are from the mining companies and appear to be sound. A committee is set-up to shortlist the proposals, Bhattacharyya said. The CIL chairman will be visiting the US next week.
Indian miners do not produce any Australian thermal coal.
ASX-listed Gujarat NRE Minerals, which is 82 per cent owned by Indian importer Gujarat NRE Coke, is the only Indian-controlled coalminer in Australia. It has two coking coalmines near Wollongong, from which it hopes to boost production in Australia from less than one million tonnes a year to seven million tonnes.
Looking beyond its border for coal is India's largest power generator, NTPC, which is currently engaged in capacity addition of 22,430 mw by the end of 11th plan. The firm is said to be exploring opportunities for acquisition of coal blocks or coal mines in South Africa, Indonesia, Mozambique and Australia.
NTPC chairman and managing director RS Sharma said on Tuesday, It is at a preliminary stage. As far as the acquisition of coal mines in Indonesia is concerned, NTPC has roped in Australian firm Macquarie as a consultant to do the due diligence.
Sharma said the NTPC board was yet to take any decision on acquiring mines or picking up minority stake in coal blocks in either of these countries.
NTPC sources, however, said the company plans to buy a minority stake in Kalimantau coal mines in Indonesia to achieve fuel security.
NTPC, which currently produces over 30,000mw, will need 150 million tonne of coal for 2009-10. It plans to import nearly 12 million tonne. After adding the proposed 22,430 mw by end of 2011-12, NTPC's coal requirement will shoot up to 225-250 million tonne. The company will import around 20 million tonne then.
NTPC hopes to produce 20 million tonne from its captive coal mines, which are under various stages of development. According to NTPC's corporate plan, the company has proposed a coal mining capacity of 50 million tonne per annum by 2017.
The company is currently developing four coal blocks - North Karanpura and Brahmini (both in Jharkhand), Ib Valley (Orissa), and Mand Raigarh (Chhattisgarh).
The strength in the Asian markets could continue to lift US producers with significant overseas leverage, said Brean Murray, who has initiated coverage on the US coal space.
Alpha Natural Resources (NYSE:ANR), Buy with a $45 price target.
Peabody Energy (NYSE:BTU), Buy with a $40 target.
Consol Energy (NYSE:CNX), Buy with a $45 target.
James River Coal (Nasdaq:JRCC), Buy with a $22 target.
Patriot Coal (NYSE: PCX) - Hold.
Walter Energy (NYSE: WLT) - Hold.
Patriot Coal Corp (PCX) closed at a 10-month high, though it gapped down slightly Monday. Shares rose further in the final two hours of the afternoon and closed higher by $2.22 at $12.42 on above average volume.
Patriot Coal Corp rose above a month and a half long range Monday. The company is trading -43.6 per cent higher (up $-8.46 to $10.95). The stock has traded within a 52-week range of $2.76 and $39.93. The stock is currently above its 50-day moving average of $8.30 and above its 200-day moving average of $6.70.
James River Coal has reported revenue of 24.7 per cent year on year to $171.7 million versuss the $189 million consensus put out by analysts. The company has issued downside guidance for FY09, as it sees EPS of $2.25-2.60 (prior range $3.30-3.80). Adjusted EBITDA was $37.0 million versus $3.0 million in 2Q08.