Peabody & Massey Could Divest Mines - Analyst Blog

Coal India Ltd., an Indian state-owned coal company, recently outlined plans to acquire stakes in mines from two U.S. coal companies, Peabody Energy Corporation (BTU) and Massey Energy Company (MEE). Details regarding location of mines and the value of purchase were not disclosed.

Coal India, the world's largest coal producer, has been seeking to secure coal assets overseas to meet the growing demand from power stations and steel mills.

Indian companies are increasingly turning to the U.S. to secure vital commodities to fuel the nation's breakneck growth. Coal demand to fuel growth of utilities and steel mills is rising faster than production in Asia's second-biggest energy consuming economy. Over the next seven years, India's power generation capacity is projected to grow by another 113 gigawatts. India currently has a power generation capacity of 164 gigawatts.

As per the U.S. Energy Information Administration's outlook last year, by 2030 the construction of new power plants and expansion of India's steel industry may triple coal imports from their 2007 level.

Coal India's management expects India to import almost 100 million tons of coal this year to meet growing demand from power plants. To take advantage of this growing demand, Coal India announced plans to get at least 50 million tons of coal per year from overseas assets in the next five to six years.

Coal India has earmarked roughly $1.2 billion to buy assets in the U.S., Indonesia and Australia through March 2011. The company raised about $3.4 billion last month by selling shares in the country's largest-ever initial public offering. Kolkata, India-based company started trading on the local stock exchange on November 4, 2010.

The company, having near-monopoly control over India's coal market, currently has no coal producing assets overseas. Earlier, in August 2009, Coal India had acquired prospecting licenses for two coal blocks in Mozambique.

In August 2010, Coal India invited bids from overseas miners to enter into contracts for long-term off-take of coal. Coal India's venture into the international markets is important as its efforts to increase domestic output have been negated by delay in receiving environmental and forest clearances for various projects.

 
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