Usha Martin won the bid for Vrinda and Sasai mines at Rs 1804 per tonne, in the second round of bidding for coal mines. It will take minimum 1.5 years to make the block operational.
The company sees coal coming from the block in 18 months. The total distance from the blocks to the plant is 170 km.
Rajeev Jhawar, MD, Usha Martin says rationale behind the price lies in the fact that logistically it is a huge advantage. "The landed cost along with the premium makes economical sense for our Directly Reduced Iron (DRI) and power production," he told CNBC-TV18.
Below is the verbatim transcript of Rajeev Jhawar's interview with Surabhi Upadhyay and Nigel D'Souza on CNBC-TV18.
Surabhi: You are willing to pay over Rs 1,800 a tonne for the block that you won, take us through the rationale and whether you feel that this price is justified?
A: We were the highest bidder at the time of the bid closing at Rs 1,804 per tonne. This block is in Jharkhand; very logistically it is advantage for us because our steel plant is in Jharkhand. The landed cost along with the premium makes economical sense for our Directly Reduced Iron (DRI) and power production.
Surabhi: If I could just understand what was your landed cost of coal as of now, how were you feeding this plant and then therefore Rs 1,804 per tonne how will that compare just in terms of cost for you?
A: The block which we were running earlier was Kathotia block which Hindalco outbid us at Rs 2,680 per tonne. The landed cost of that would have been around Rs 5,400 per tonne whereas the landed cost of this coal including the bidding amount would be around Rs 4,000 per tonne. So we think that losing Kathotia versus getting Brinda Sasai would definitely be more positive from our point of view looking at the bid price for Kathotia and the bid at which we won Brinda Sasai. Of course we are still to get communication from MSTC on the final winning of the bid.
Nigel: Firstly with regard to winning this particular block, could you tell us when you expect some kind of coal to come out from this block in the next six months to one year?
A: I would say it would take minimum a year and a half to make the block operational. I would say 18 months from now we should see some coal coming out of it.
Nigel: What is the inventory then you are sitting on because in the interim how will you be sourcing your coal?
A: For next two-three months we have our coal available from the mines which we were running, Kathotia mines which we could not win versus Hindalco. So we have some coal sitting on it. Plus we have taken action from e-auction and import so we should be able to manage it through this process for the next one and a half years. Today the global prices of coal are fairly attractive. So next 18 months, we would have to meet it through e-auction and imports and later on we would then start getting coal from our own mines.
Nigel: What is your total coal requirement on a per annum basis because I believe from this particular block that you have just get won, you will get only around 1 million tonne so is that enough or how much do you require to run your plant at 100 percent capacity utilisation?
A: At 100 percent utilisation we would require more than about 1.4 million tonne per annum. So, we would be needing part of the requirement from this and then we have other few blocks coming up for auction also in the next few days. So we will like to see that if we could enhance of course subject to the pricing and the bidding which takes place.
Nigel: You told us that winning this block could be a blessing in disguise because it will come to you at a landed cost of around Rs 4000 versus Rs 5000 plus from Kathotia. However, could you tell us what is the total distance from this block that you have just won that is the Brinda and Sasai coal block from your plant?
A: The Brinda Sasai would be about 170 kilometers and Kathotia block was about 280 kilometers.
Nigel: You would use roadways or railways to transport this and what would be the cost on a per tonne basis?
A: 90 percent would be through railways and the railway cost today would be around Rs 700 per tonne.