The loss-making Benga coal mine in Mozambique, owned by the SAIL-led consortium of five PSUs, International Coal Ventures (ICVL), and Tata Steel, is eating into promoters’ assets.
ICVL bought 65% in the mine from mining giant Rio Tinto in July last year for $50 million. ICVL and Tata Steel have since managed to stem the losses a bit, but the asset has still been incurring a close to $7.5-million loss each month since October 2014, mainly due to high mining and transportation costs and subdued prices of coking coal.
Though the Indian entities have initiated a clutch of measures, including pruning output to cut costs, any visible impact on profitability is likely to be seen only in a year, when the company will start mining on its own and substitute the 590-km distance from the mine head to the port with slurry transport, say people familiar with the matter.
“We are losing $9-10 million per month. This is inclusive of a refundable VAT. Minus VAT, the effective loss would be $7.5 million a month. We have taken various measures to reduce our cost of production. However, the cost of mining will come down when we start doing it on our own.
Doing that, we can also get rid of the service tax. To reduce transportation cost, we are mulling slurry transport,” ICVL’s managing director and CEO NC Jha told FE.
Promoted by NTPC, Coal India, SAIL, NMDC and RINL, ICVL was set up in 2009 with the mandate to buy coal assets overseas. It had signed a pact on July 28 last year to buy Brazilian mining giant Rio Tinto’s 65% stake in the Benga mine and 100% each in Zambeze and Tete East coal assets in Mozambique for $50 million. Tata Steel holds the balance 35% in the Benga asset. Rio Tinto had bought these mines as part of its Riversdale Mining acquisition in 2011. NTPC and Coal India did not participate in the Mozambique acquisition.
The SAIL-led consortium took management control of these assets in October, 2014. The mines have an estimated 2.6 billion tonne coal reserves and huge CBM potential.
The Benga asset can produce 5.3 million tonne coking coal per annum. However, given the losses, the promoters are not utilising the full capacity, and producing only 3 lakh tonne per month. Around 35 % of that is coking coal, 10% thermal coal and the remaining 55% are rejects. Though coking coal is being shipped to India for use by SAIL and RINL, the thermal variety and the rejects are being stacked at the mine’s head.
ICVL is negotiating to sell them in local markets.
“Transportation and loading alone costs around $50/tonne now,” Jha said. SAIL and RINL are users of coal, but they have to offer market prices to purchase fuel from the joint venture company.
Jha said that while coking coal prices have come down by nearly $25 a tonne since October to around $100 per tonne, impacting profitability, the cost of production has not declined. This is mainly because mining is currently being done through a five-year contract signed in 2010 between the erstwhile promoter and a South African company. As per the local law, the outsourced service also attracts 17% tax.
“From January 2016, we will go for a different mode of mining and this will bring down our cost substantially,” he added.
ICVL was set up aimed at ensuring long-term security for supply of the critical raw material. Indian steelmakers mostly use imported coking coal. SAIL and RINL are increasing their capacity to 23 mtpa and 6.3 mtpa, respectively. Their need for coking coal would increase to about 25 mtpa by 2015. NMDC is also in the process of setting up a 3-mtpa capacity integrated steel plant at Nagarnar in Chhattisgarh.
Asset or liability?
* The SAIL-led consortium of five PSUs, International Coal Ventures (ICVL), bought 65% in Benga from Rio Tinto in July last year for $50 million. Tata Steel holds the balance 35% in the mine
* Though the Indian entities have initiated a clutch of measures, including pruning output to cut costs, any visible impact on profitability is likely to be seen only in a year, when the company starts mining on its own, say people familiar with the matter
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