DNA Money reported that Mercator Lines is foraying into coal mining through its subsidiary in Singapore and has secured mining licenses for two coal blocks in Indonesia and one in Mozambique.
Based on the fact that bulk cargo freight rates in the recent past were at a record high, the new venture is set to be an advantage for the shipping major.
Mercator has secured 50% rights in two coal blocks in Indonesia, which have reserves of 15 million tonnes of decent to good quality coal. It would start production of coal there in July 2008 and expects the 2 mines to contribute 1 million tonne of coal in the first year.
However, the coal block in Mozambique where Mercator Lines has 85% rights is still under development. The coal reserves there have been estimated to be around 3 billion tonnes and the company anticipates a wait of another 2 to 3 years before they can start production.
Mercator has spent USD 5 million in Indonesia for developing the mines and expects a similar expenditure in Mozambique. This also includes production tax and 9% royalty that the company needs to pay the Indonesian government. Thermal coal, on the other hand is currently sold at USD 45 to USD 50 per tonne.
Mr Atul Agarwal MD of Mercator said that "The coal venture would help us become a complete energy supply chain company, as it would add to our logistics services. We are looking at mining and selling one million tonnes of coal in FY09, out of the two Indonesian mines."
Mr Agarwal said that "Rather than acquiring existing producing mines, we have looked at green field, projects which need development."
Analysts said that the venture could help get a constant revenue stream for Mercator, which transports coal to power plants of TATA Power, Jindal Steel and Reliance Power, apart from acting as a hedge. But the company prefers to call the move a backward integration.
Mercator is one of the leading carriers of bulk cargo in India. They ferry iron ore, coal and much of their revenues come from bulk cargo unlike Great Eastern Shipping and Shipping Corporation of India.
