Second Indian investor buys into Pike River coalmine

NZOG's coyness about details of Gujarat's Pike River stake hints that a share float is not far away.

A second Indian company has bought into the Pike River Coal mine before its expected float by majority owner New Zealand Oil & Gas.

Listed Indian coke-making company Gujarat NRE Coke will invest $20 million in Pike River and will also buy 40 per cent of the production at market prices for the life of the mine.

This is equivalent to about 400,000 tonnes a year with a present value of up to US$50 million ($80.097 million).

The new capital will be used to help develop the field into a mine, with the first coal expected to flow in the September quarter next year.

NZOG owns 69 per cent of Pike River, Indian coking coal company Saurashtra Fuels Private bought a 10.6 per cent stake last year for $17 million and the rest is held by private minority shareholders.

NZOG and Pike River company secretary Brian Roulston said the number of Pike River shares acquired by Gujarat and the subsequent stakeholding of the Indian company would be determined by the share price set in an initial public offering.

Roulston said he could not discuss the details of the potential listing due to securities regulation concerning pre-IPO advertising.

This regulatory necessity could indicate that an IPO is not far away.

"Obviously, it sort of gives strong support for the fundamentals of the IPO in terms of them [Gujarat] being a trade party and very interested in getting involved," Roulston said.

Arun Jagatramka, vice-chairman and managing director of Gujarat, said buying 400,000 tonnes of coal from Pike River annually would be worth between US$40 million and US$50 million a year at today's prices.

Jagatramka said the $20 million investment in Pike River equated to about 13 per cent of the company before the IPO.

He said Pike River coal was high in sulphur but low in phosphorus and produced little ash.

Gujarat will blend Pike River and Australian coal to produce a hard coking coal for sale in India.

"Pike River on its own does not make sense because of the high sulphur ... but it makes a good blend," he said. "It's like sugar for our coal."

Pike River has two main coal products - one with a higher and one with a lower sulphur content - of which Gujarat will purchase equal quantities.

In the past two years, Gujarat has acquired two coal mines in New South Wales plus interests in other mining and mineral exploration ventures.

"Our aim is to secure the hard coking coal resources to meet the demands of our customers in India and other countries," Jagatramka said. "Pike River extends our portfolio and will further that ambition."

Gujarat imported 800,000 tonnes of coal into India last year - a total Jagatramka expected to rise to four million tonnes in three years' time.

In total, India imports about 22 million tonnes of coking coal a year, which is expected to rise to 64 million tonnes by 2011 to 2012.

This demand would be further increased by India's aim to manufacture 100 million tonnes of steel by 2020.

"We are excited by this investment," Jagatramka said.

"The low ash and low phosphorus levels, top-of-the-range plasticity [fusibility] and strong coking properties of Pike River coal will allow Gujarat NRE to develop coke with the performance characteristics sought by the makers of high-quality steel."

In response to the growing demand, Gujarat plans to build a new coke oven plant in Dharwad, Karnataka, slated to start production in July next year.

Gujarat's investment is subject to regulatory approvals including Overseas Investment Commission consent.