Coal India Makes Move Into Iron Ore In Diversification Push

h12kf[p2umk0s}l]cwow1ij3_media_dl_1.png Ministry of Coal, India

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(Bloomberg) — Coal India Ltd. is set to start mining iron ore as the world’s biggest coal producer diversifies its core business and reduces dependence on the dirtiest of fossil fuels.

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The state-run company has been declared the preferred bidder for an iron ore block in the eastern Indian state of Odisha, it said in a statement to the exchanges. The Gadadharpur block has estimated total resource of 288 million tons, it said in the filing. 

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Coal India is expanding into mining of other minerals and generate green power as India inches closer to achieving net zero emissions by 2070. The company has already won a graphite block in central India.

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Over the last six years, the Kolkata-based firm has secured approvals of its shareholders to foray into new businesses — including mining of critical minerals, such as lithium and cobalt, producing hydrogen and making energy storage batteries.

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“The headroom for growth in coal is getting limited with expansion of renewables,” said Rupesh Sankhe, senior vice president for research at Elara Capital India Pvt. “It’s therefore prudent for the company to harness its expertise in mining and deploy cash into new strategic areas for future growth.”

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Growing competition from smaller miners is also eating into Coal India’s market share. The company’s contribution to India’s total output declined by about 10 percentage points to 74% in the year through March, government data showed.

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Meanwhile, demand for the iron and steel raw material is expected to explode in the South Asian nation, which has set a target to more than double steel production capacity to 500 million tons by 2047.

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India’s biggest steelmakers are investing billions of dollars to expand output as consumption soars in one of the world’s fastest growing economies, led by infrastructure building. The burgeoning steel capacity may lift India’s iron ore imports fourfold to 40 million tons by 2035, according to industry consultancy Wood Mackenzie.

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Coal India’s entry will be beneficial for the steelmakers as well, said Dhruv Goel, Chief Executive Officer of commodity intelligence firm BigMint, adding that supplies are generally assured if a state-owned firm is operating the mine.

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The company has been battling high levels of unsold coal inventories since last year, and even though the fuel accounts for most of the nation’s electricity generation, its share in the country’s total power output has continued to shrink with the expansion of renewables. Annual shipments growth may slow down to about 3% over the next four to five years, Sankhe said.

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The coal miner has one year to fulfill some conditions to be declared as successful bidder for the block and another three years for the execution of the mining lease, it said in the exchange filing.

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(Updates with chart and comments in 5th and 9th paragraphs.)

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