ICVL may drop outright purchase of Australia's Washpool coking coal project

NEW DELHI: International Coal Venture (ICVL), a consortium formed by five state-owned companies to buy foreign coal mines, may drop its plans of outright purchase of Australia's Washpool coking coal project after its initial bid turned expensive due to falling coking coal prices.

The consortium may instead buy a small stake and team up with the current owner Aquila Resources to implement the project. Washpool is a hard coking coal asset in the Bowen Basin of Queensland, owned by Perth-based Aquila Resources. Media reports in March had said that ICVL had bid A$301 million for the Queensland-based asset.

Australian spot coking coal prices have corrected by 22% since the start of June largely due to the absence of demand from China (the biggest buyer), India and Europe. Potential buyers such as Chalco are backing off from deals seeing the correction in prices. Aluminium Corporatino of China (Chalco) is believed to have walked out of the transaction to buy Mongolian coal major SouthGobi Resources.

Three days ago, the Wall Street Journal quoted Alexander Molyneux, chief executive of SouthGobi, saying that it is certain that Chalco won't pursue its bid for Mongolia-focused coal miner with potentially 800 million tonnes of coal resources. Chalco had offered $920 million. However, Anglo American recently bought 59% in Revuboe, a Mozambique coal mine for $556 million.

"The current spot coal price is around $155, which is equal to the cost of mining for most of the miners in Australia," says Julien Hall, team leader, metallurgical coal and coke steel raw materials, Platts, Singapore. This will put a lot of pressure on the miners and one can expect more mines to come up for sale in the next 3-6 months.

ICVL comprises National Mineral Development Corporation, Coal India, Steel Authority of India, Rashtriya Ispat Nigam and NTPC. SAIL chairman CS Verma declined to comment, adding he was bound by a non-disclosure agreement signed by the two sides. Aquila Resources, the owner of Washpool, was also unavailable for comments.

"Targets are valued on their mid- to long-term demand and supply curves and margin curves, rather than the price today. Coal and coal bearing assets are two different things, and it is hard to say when (coking coal) will bottom out making it the ideal opportunity," said Anjani Agrawal, national director and partner, metals and mining leader, E&Y.

(With inputs from Jwalit Vyas in Mumbai)