Rio Tinto said on Wednesday it would sell the Benga mine and other projects in Tete province it bought via a USD 4 billion acquisition of Riversdale Mining in 2011 for just USD 50 million to the group, International Coal Ventures Pvt Ltd (ICVL).
In 2013, Rio Tinto sacked its chief executive and other executives directly involved in the acquisition of Riversdale and wrote off about USD 3.5 billion of the purchase price, partly owing to a failure to secure a permit to move coal by barge down Mozambique's Zambezi River.
But CS Verma, chairman of ICVL that had lost out to Rio Tinto in buying Riversdale, said the venture will be able to profitably bring in coal to India using a "secret recipe".
"I will not be able to tell you what the recipe is but we will have an operational control that will provide us coal security in a cost effective way," Verma told Reuters by phone.
Also read: Coal India undermined by basic equipment flaws
He said ICVL would use existing infrastructure in Mozambique to optimise its operations and would participate in the development of projects such as railways and ports if needed.
Verma expects the deal to be closed in two months.
The Benga mine, 35 percent owned by India's Tata Steel Ltd, currently produces 5 million tonnes. It has a reserve of 2.6 billion, with 70 percent of that steelmaking coking coal.
Once production is ramped up to 12-13 million tonnes, ICVL will bring in 60 percent of the production to India. The rest will be used by Tata Steel under an offtake deal, Verma said.
This is the first acquisition by six-year-old ICVL, comprising state-owned firms such as Steel Authority of India Ltd , Coal India Ltd, Rashtriya Ispat Nigam Ltd, National Minerals Development Corp and National Thermal Power Corp Ltd.
Apart from ICVL and Tata Steel, Coal India, Essar, JSW Steel and Jindal Steel and Power already own coal assets in the southern African country.
Mozambique exports most of its coal through the port of Beira, on its central coastline with a capacity of 6 million tonnes a year. But the facility rarely reaches its potential and suffers from high maintenance costs as it is prone to flooding and requires constant dredging.
Coal rail capacity is around 6.5 million tonnes a year yet rarely reaches even this due to frequent disturbances, mainly due to technical faults and flood damage.
All these makes transportation of coal and expensive affair.
The cost of transporting 1 tonne of coal from the mine of India's Jindal Steel and Power Ltd in Mozambique to the port is about USD 60 million, its Chairman Naveen Jindal said.
In Australia, the mine to port cost is just about USD 10 per tonne, he said on Thursday on the sidelines of a conference.
Tata Steel stock price
On August 01, 2014, at 14:12 hrs Tata Steel was quoting at Rs 553.00, down Rs 0.4, or 0.07 percent. The 52-week high of the share was Rs 578.60 and the 52-week low was Rs 195.40.
The company's trailing 12-month (TTM) EPS was at Rs 66.02 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 8.38. The latest book value of the company is Rs 629.60 per share. At current value, the price-to-book value of the company is 0.88.
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