Adani buys Aussie coal assets in $2.7 bn deal

Ahmedabad/New Delhi: Entire 50 mt yearly output for its power projects here; looking for more mine buys

India’s biggest coal importer, Adani Enterprises, has acquired an Australian coal asset of Linc Energy in a cash and royalty deal worth $2.7 billion (Rs 12,500 crore). This would be the largest single investment by an Indian company in Australia and a second coal acquisition abroad for Adani. It owns a coal mine on Indonesia's Bunyu island that produces six million tonnes per annum (mtpa).

Adani will pay A$500 million (Rs 2,100 crore) in cash and A$2 (Rs 41.60) per tonne in royalty for the first 20 years of production from the mine in Galilee Basin of Queensland state. Australia's Foreign Investment Review Board has approved the deal and the provisional Queensland government has given “an indicative approval”.

The Galilee tenement has a thermal coal resource of 7.8 billion tonnes, making it the largest single tenement in Australia. Adani estimates an annual production of 50 mtpa from the mine. “The entire quantity will be imported into India. We are using the integrated play of coal, mining and port, which is available within the group,” Devang Desai, group chief financial officer, told Business Standard. He said the company was looking to buy more coal assets in Indonesia and Australia.

The group is also planning to set up an import terminal at Mackay, which will enable the company to ship the coal to India. "While multiple evacuation routes are available for mined coal, Adani (through Mundra Port and Special Economic Zone) has recently been awarded Preferred Proponent Status for the development of Dudgeon Point Terminal at Mackay, Queensland, which entitles Adani the right (subject to technical and commercial feasibility) to develop a coal terminal of 30-60 mtpa capacity," the company said in the statement.

The coal from Galilee would support the rapid expansion of sister firm Adani Power Ltd, which is developing power projects at Mundra, Dahej and Bhadreshwar in Gujarat, Tiroda and Kawai in Maharashtra and Chhindwara in Madhya Pradesh. The combined capacity of these projects is estimated to be 13,000 Mw.

"Adani Group aims to achieve 20,000 Mw power generation capacity by 2020, of which 13,000 Mw power projects are being implemented by the company. There is a clear need for securing coal supply and the Australian coal asset will help us reach to the target," an executive said.

The group has tied up the entire quantity needed for 6,600 Mw power capacity through domestic linkages. Some of its present requirement is also being met from its captive mine in Indonesia. The additional imports will be used for its capacity addition plan in the power sector, besides trading. “We have a two-pronged play in the coal sector. We have 50 per cent share in total coal imports into the country and we need coal for captive use. So, the Australian coal will be used for both the purposes,” said Desai.

Coal Grab

Galilee tenement has coal reserves of 7.8 bn tonnes
Adani will take 4 years to begin operations
Plans to import coal to feed its power projects in India
Adani aims to produce 20,000 Mw of power by 2020
Adani Enterprise shares gained 2.11% to close at Rs 622.55 on BSE
The company imported about 25 mt of coal in 2009-10, as against 18 mt in 2008-09. According to Desai, about a 10th of their imports were from Australia. Since it has its own mine in Indonesia, the company is importing 70 per cent from that country.

While the group is looking for mines in Australia to ensure supplies for domestic sale and its own power projects, Linc Energy wanted to exit the thermal coal mining business, since this was not part of its core activity of coal gasification.

The markets cheered the news of the acquisition, with the Adani share gaining 3.9 per cent to touch an intra-day high of Rs 633.40 on the Bombay Stock Exchange. It later shed some weight, to close the day up by 2.1 per cent, at Rs 622.55.