Lanco Infra wins bid for Griffin coal mines in Western Australia

Indian infrastructure company Lanco Infratech Ltd won a bid to acquire the largest operational thermal coal mines in Western Australia, owned by Griffin Coal Mining Co. Pty Ltd, for an undisclosed amount.

Griffin Coal is a unit of the Griffin Group, an energy-to-cattle company.

The winner was among five companies from India, China and Japan that bid for the assets. GVK Power and Infrastructure Ltd was the other Indian firm. State-owned NTPC Ltd had previously dropped plans to seek the assets,Mint reported on 7 July.

Lanco signed a binding agreement with Griffin through its Lanco Resources Australia Pty Ltd unit to acquire the mine, said chief financial officer Suresh Kumar Jandhyala over the phone from Australia.

Apart from fuel security for its power generation capacities in India, the acquisition of Australian coal mines gives Lanco an opportunity to participate in the burgeoning natural resources trading market.

Griffin’s business collapsed in January and KordaMentha, which was appointed the administrator, said its companies had $475 million (Rs.2,152.7 crore) of unsecured debt. The coal company had failed to pay debt instalments and had tax liabilities, it said.

While the assets of Griffin Coal include a power project and its associated coal mines, Lanco is only buying the latter.

“We expect to complete the acquisition in a couple of months and we will disclose the deal size in due course,”?Jandhyala said. “The cost of the acquisition will be first met through bridge financing, which will be converted later into long-term financing.”

The coal mines, based out of Collie in Western Australia, currently produces over 4 million tonnes per annum (mtpa). The mining tenements contain over 1.1 billion tonnes of thermal coal resources.

“The coal production capacity at Griffin mine can be ramped up to more than 15 mtpa once we develop evacuation infrastructure. The ramping up of coal capacities will be done over the next three to four years,” Jandhyala said.

On Wednesday, Lanco gained 0.49% to Rs.61.30 on the Bombay Stock Exchange. The benchmark index lost 0.76% to close at 19,647 points.

Indian utilities have been engaged in a race with Chinese government-run coal miners such as China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd, which are actively engaged in acquiring mining concessions overseas.

“Griffin has attractive features and my assessment is that it will be valued higher, at say $800 million to $1 billion,” said Kameswara Rao, executive director with global consultancy firm PricewaterhouseCoopers.

Power companies are increasingly seeking operating coal mines overseas given the long lead time to develop coal blocks in India. Although Australia has quality coal and a sound regulatory environment, concessions and freight costs are expensive.

Lanco Infratech, which reported a growth of 35% in net sales to Rs.8,291 crore and a 64% growth in post-tax profit to Rs.458.5 crore for the fiscal ended 31 March, had a total debt burden of Rs.8,361 crore on the same date.

The acquisition of Australian coal mines will help Lanco meet fuel requirements for existing and forthcoming thermal power generation capacities in India.

Lanco, which currently has an operating power generation capacity of 1,995MW and 7,962MW under various stages of construction, expects to raise operational capacities to 4,000MW by March 2011 and 15,000MW by March 2015.

Lanco requires some 15 mtpa of coal for its 4,000MW of operational power capacity by March 2011 and around 60 mtpa of coal to support 15,000MW of power by March 2015. Of the 15 mtpa coal it needs, Lanco has tied up some 75% of supplies from the domestic market and is importing the rest. According to the government, the power sector is facing a coal shortage of around 105 mtpa, which is expected to rise to 225 mtpa by 2012.

In a 28 September report, JPMorgan said the Indian power sector accounted for 71% of India’s coal demand, including both thermal utilities and captive power plants. “This segment is likely to see strong growth over the next few years given the large capacity build out expected in the power segment.”

Analysts said Indian power developers seeking overseas coal mines should be careful not to overpay.

Vinod V. Nair, vice-president, research, with Mumbai-based equity research firm Pinc Research, said: “Some of the Indian power developers have in the recent past ended up spending more than what the overseas coal mines deserved, where the mines were not operational, apart from constraints such as poor accessibility to ports.”

Indian power developers “should ensure that the valuations are commensurate with the quantity and quality of the coal reserves and that the mines are operational with assured revenue stream from the date of acquisition,” he said.

Source – Live Mint

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SUMIT KUMAR

Executive at India Electron Exchange

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