JSPL Emerges As Highest Bidder For Gare Palma Coal Block In Chhattisgarh
Jindal Steel and Power Ltd. has emerged as the highest bidder for a coal block in Gare Palma, Chhattisgarh, that would suffice the steelmakers’ fuel requirements and boost its operating income.
The company’s bid for Gare Palma IV/1 block stood at Rs 230 per tonne, a premium of 53 percent over reserve price set by the government, VR Sharma, managing director at JSPL, told BloombergQuint in an interview.
The block has a peak capacity of 6 million tonnes a year and is close to JSPL’s steel mill and captive power plant, Sharma said, adding that it would ensure coal security for the next 10-12 years.
The Supreme Court had taken away Gare Palma blocks from JSPL during the coal scam case. In a judgment on Aug 25., 2014, the allocation of coal mines—Gare Palma IV/1 (operational) and Gare Palma IV/6—was found as “arbitrary and illegal”. The government had then directed Coal India Ltd. to act as a custodian for the coal field.
According to a PwC analysis in 2015, if steelmakers were to opt for coal sourcing through spot market, imports or linkages, their fuel procurement costs are bound to increase significantly, in turn affecting the viability of the sector.
The coal block win would help JSPL save costs and boost earnings before interest, tax, depreciation and amortisation per tonne. This auction price of Rs 230 per tonne would roughly lead to a saving of Rs 800-1,000 per tonne compared to the e-auction price, Sharma said. Coal India's e-auction price available for the quarter ended June stood at Rs 2,155 per tonne.
At the lower end of Rs 800 a tonne, that means a potential benefit of Rs 480 crore at the peak capacity of 6 million tonnes a year. That’s 5 percent of FY21 Bloomberg consensus Ebitda estimate of Rs 8,860 crore.
The company, however, said it was yet to calculate the mining costs since conveyors will have to be installed for upgrading the mine.
The coal block win is expected to improve coal security for JSPL and lead to lower unitary cost as the company is “geographically” conversant with the block, Edelweiss Research’s Analyst Amit Dixit said, adding that most of the equipment would be synced to use the coal produced from the mine.
On Monday, JSPL shares rose 11.31 percent to Rs 137.25 apiece on the BSE while the benchmark Sensex gained 0.34 percent to end the day at a record high of 40,301.96 points.
Watch | Jindal Steel and Power’s winning bid for Gare Palma block.
(The copy was updated to show the FY21 consensus Ebitda estimate.)