Product Note for Coal India Ltd

The Offer Coal India Limited
Sector Mining & Mineral Products
Transaction 100% Book Building
Offer Size 631,636,440 equity shares of Rs 10 each
10% of the fully diluted post offer paid-up capital
IPO Dates Oct 18th 2010 – Oct 20th 2010 (for QIB)
Oct 18th 2010 – Oct 21st 2010 (for Retail / HNI)
Price Band Rs (*) to Rs (*)
Bid Lot (*) equity shares and in multiples of (*)
IPO Grading CRISIL; ICRA & CARE 5/5 – Strong Fundamentals
Exchanges BSE; NSE
BRLM Citigroup Global Capital Markets India Private Limited; Deutsche Equities (India) Private Limited; DSP Merrill Lynch Limited; Enam Securities Private Limited; Kotak Mahindra Capital Company Limited; Morgan Stanley India Company Private Limited
Registrar Link Intime India Private Limited


Objects of the Offer
The objects of the Offer are to carry out the divestment of 631,636,440 Equity Shares by the Selling
Shareholder and to achieve the benefits of listing the Equity Shares on the Stock Exchanges. The Company
will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.
The Business
They have been conferred the “Navratna” status by the GoI (provides them with certain operational and
financial autonomy). They are the largest coal producing company in the world (Source: CRISIL
Research), based on their raw coal production of 431.26 million tons in fiscal 2010. They are also the
largest coal reserve holder in the world (Source: CRISIL Research) based on their reserve base as of April
1, 2010. Coal produced by them accounted for approximately 81.9% of coal production in India in fiscal
2009 (Source: CRISIL Coal Outlook). They produce non-coking coal and coking coal of various grades for
diverse applications.
As of March 31, 2010, they operated 471 mines in 21 major coalfields across 8 states in India
(Chhattisgarh, West Bengal, Jharkhand, Maharashtra, Madhya Pradesh, Assam, Orissa and Uttar
Pradesh) including 163 open cast mines, 273 underground mines and 35 mixed mines (which include
both open cast and underground mines).
As of April 1, 2010 they had:
Resource Categories
􀂃 Total Resources - 64,218.0 million tons
􀂃 Measured Resources - 51,326.3 million tons
􀂃 Indicated Resources - 9,924.4 million tons
􀂃 Inferred Resources - 2,967.3 million tons
Reserve Categories
􀂃 Total Reserves - 18,862.9 million tons
􀂃 Proved Reserves - 10,595.1 million tons
􀂃 Probable Reserves - 8,267.8 million tons

Corporate Structure
The company has 9 direct Subsidiaries and 2 indirect Subsidiaries and one Foreign Subsidiary (Coal India
Africana Limitada).

Their Coal Reserves and Resources as of April 1, 2010 (as classified under the JORC code - 2004
Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, as audited
by SRK - SRK Mining Services (India) Private Limited and SRK Consulting (UK) Limited.)



Central India Coalfields are comprised of the Jhilimili, Bisrampur, Lakhanpur, Sindurgarh, Umaria, Johilla,
Sohagpur, Sonhat and Chirmiri coalfields.

Information relating to their coalfields (they operate and are currently under production):


UG: underground mines; OC: open cast mines; M: mixed mines (includes both open cast and underground mines);
T:Total as on April 1, 2010.

Production by Coalfield



Coal Production



􀂃 Raw Coal: Non-Coking Coal includes NEC (Assam grade) coal; Coking Cola includes semi-coking coal and
weakly coking coal.
􀂃 They produce a significant proportion of their non-coking coal from mines operated in the Korba,
Singrauli,Talcher, Ib Valley and Wardha Valley coalfields.
􀂃 Most of their coking (metallurgical) coal is produced at the Jharia coalfield.

Raw Coal
They continue to expand their raw coal production capacities. As of March 31, 2010:
􀂃 77 projects with an aggregate proposed capacity addition of 184.78 million tons per annum, involving
an aggregate proposed capital expenditure of Rs.110,064.60 million had received project investment
approval from their Board and the Board of Directors of the relevant Subsidiaries for the
implementation of these projects.
- Of the 77 projects for which requisite investment approval had been received as of March 31,
2010, 32 projects, with an aggregate capacity of 104.00 million tons per annum had been
implemented by March 31, 2010, and had contributed 57.0 million tons towards their production
during fiscal 2010.
- 45 projects (comprising 22 capacity expansion projects for existing mines and 23 new mine
projects) had received relevant investment approval (of their Board and the board of directors of
relevant Subsidiary companies) and were in various stages of mine planning and development:
(i) 25 projects, with an aggregate estimated capacity of 47.51 million tons per annum,
and involving an aggregate estimated capital expenditure of Rs.33,857.10 million,
were at various stages of implementation as of March 31, 2010, and are expected to
become operational by the end of fiscal 2012;
(ii) 20 projects, with an aggregate estimated capacity of 33.27 million tons per annum,
and involving an aggregate estimated capital expenditure of Rs.25,762.79 million,
involve longer gestation periods and are expected to become operational during the
12th Five-Year Plan (2013-2018) period.
Beneficiated Coal
Some of the raw coal they produce is used as feedstock for the production of beneficiated coal. They
currently operate 17 coal beneficiation facilities. They operate 5 non-coking coal beneficiation facilities
with an aggregate designed feedstock capacity as of March 31, 2010 of 17.22 million tons per annum and
12 coking coal beneficiation facilities with an aggregate designed feedstock capacity as of March 31, 2010
of 22.18 million tons per annum.
They also intend to develop an additional 20 coal beneficiation facilities with an aggregate additional
proposed feedstock capacity of 111.10 million tons per annum to increase their production of beneficiated non-coking coal and beneficiated coking coal.

Coal Sales
They have 12 regional sales offices across India.



Coal is sold to their customers pursuant to long-term FSAs (Fuel Supply Agreements), separate memoranda
of understanding entered into with customers or under their E-Auction scheme.
Open Cast Mines and Underground Mines
As of March 31, 2010, they operated 163 open cast mines, 273 underground mines and 35 mixed mines
(which include both underground mines and open cast mines). Most of their current raw coal production is from their open cast mines.



They intend that all new open cast mines with coal production capacities greater than 2.5 million tons per
annum not linked to pit head customers will eventually be equipped with dedicated coal beneficiation
facilities.
Mining Rights and acquisition of land
The mines in which they carry out mining activities were granted to them pursuant to either
(i) The grant of deemed mining lease pursuant to the Coal Mines (Nationalisation) Act, 1973: They
enjoy the status of a deemed lessee of the concerned State Government in relation to all the
nationalized coal mines.
(ii) The grant of mining rights pursuant to the Coal Bearing Areas (Acquisition & Development) Act,
1957 (CBA Act): They acquire ownership on the surface rights and mining rights on the coalbearing
areas. In certain circumstances where the rights, which are originally granted through a
mining lease, are acquired pursuant to the CBA Act, they are deemed to have become the lessee of
the state government from the date of such vesting.
A majority of the mines they inherited during nationalization of the coal industry were underground mines
leased under the MMDR Act. However, currently, a majority of their production is derived from open cast
mines that were acquired pursuant to the CBA Act, for which they own the surface rights and the mining rights.

Exploration Activities
Exploration of coal deposits in India is carried out in 2 stages: regional exploration and detailed
exploration.

Regional exploration - Carried out by government organizations such as Geological Survey of India
("GSI") of the MoM,
􀂃 Detailed Exploration - The relevant coal companies typically undertake detailed exploration. They
conduct their detailed exploration and drilling activity through CMPDIL (Central Mine Planning &
Design Institute Limited)

They are currently conducting detailed exploration activities in 12 coalfields through CMPDIL and
exploring potential open cast deposits (including expansion projects) in 14 blocks. In addition, they are
studying the feasibility of mining underground coal deposits in 14 coal blocks.

Transportation, Infrastructure and Logistics



MGR – Merry go round, rail circuit
(1) Includes movement of coal by rail to ports for coastal shipment.
(2) Includes coal transported directly through conveyor belts / rope ways to pit head customers.

Customers
Their customers include large companies, including thermal power generating companies, steel producers
and industrial companies both in the public and the private sector with whom they have long-standing
relationships.


(1) Includes coal sold to small customers through state and central agencies and e-auction, open sales scheme and
brick sector
Other than certain insignificant quantities of coal sold in Nepal and Bangladesh, they sell all of their coal in
India.
Non-coking coal used in the thermal power industry constitutes most of their coal production. Coal sold to
government-owned and controlled power generation companies and utilities contribute a substantial
majority of their total sales.

Distribution of Coal
􀂃 Coal Distribution through FSAs and through State Nominated Agencies
The NCDP (New Coal Distribution Policy) stipulates that customers with coal requirements more than
4,200 tons per annum are required to enter into FSAs with the Company.
(i) Valid linked existing customers as of the date of introduction of the NCDP with annual
coal requirements up to 4,200 tons per annum were provided with an option to either:
- Enter into FSAs with the Company directly for the supply of coal;
- Access their coal requirements through the applicable agencies and associations
nominated by the respective State Governments ("State Nominated Agencies").
(ii) All new customers with coal requirement up to 4,200 tons per annum will receive coal
through State Nominated Agencies only.
􀂃 E-Auction Scheme
The E-Auction scheme of coal has been introduced to provide access to coal for customers who were
not able to source their coal requirement through the available institutional mechanisms under the
NCDP for various reasons.
Pricing of Coal
The principal factors that affect the price of their raw coal and beneficiated coal are the quality of their raw
coal (grade of coal) and the mode of sale, i.e. whether such coal is sold under their FSAs, under their EAuction
scheme or under specific memoranda of understanding entered into with the customer.

International Initiatives
􀂃 Coal Videsh – a special division to streamline their activities related to sourcing of coal from
international sources to bridge the demand-supply gap in India has been established.
􀂃 They have successfully bid in a global tender floated by the Government of Mozambique and acquired
prospecting licenses in August 2009 for 2 coal blocks in Mozambique for further exploration and
development of these coal blocks over a period of 5 years. They have established a wholly owned
subsidiary CIAL in Mozambique.
􀂃 They have initiated the process of selecting coal companies as prospective strategic partners for their
international initiatives in Australia, the United States, South Africa and Indonesia, countries from
which coal is currently imported into India.
􀂃 They have commenced the due diligence process for and are currently evaluating the proposals for
acquisition of coal assets in Australia, Indonesia and the United States.
􀂃 In their annual plan for fiscal 2011, they have earmarked Rs.60,000 million for the acquisition of
international coal assets.
􀂃 They have established a joint venture company, ICVL, with NTPC, SAIL, RINL and NMDC for the
acquisition of metallurgical and thermal coal assets outside India to provide supply of coal from
international sources to meet part of the requirements of SAIL and RINL.

Strengths
􀂃 The largest coal producer and reserve holder
in the world
􀂃 Well positioned to capitalize on the high
demand for coal in India
􀂃 Track record of growth and cost efficient
operations
􀂃 Strong track record of financial performance
􀂃 Strong capabilities for exploration, mine
planning, research and development
􀂃 Experienced senior management team and
large pool of skilled employees

Growth Strategies
􀂃 Continue to increase production and capitalize
on the significant demand-supply gap for coal
in India
􀂃 Improve realizations through increased sales of
beneficiated coal and higher quality coal, and
the use of E-auction pricing mechanisms
􀂃 Enhance their profitability and maintain their
competitiveness by improving operating and
cost efficiencies
􀂃 Continue to increase their reserve base in India
􀂃 Acquire strategic international resources or
mining rights and identify joint development
opportunities
􀂃 Continue to focus on developing
environmentally and socially sustainable
operations






Promoters
The President of India acting through the MoC (Ministry of Coal, Government of India).

Financials
Extracts of the Restated Consolidated Statement of Profit & Loss Account


Extracts of the Restated Consolidated Statement of Assets and Liabilities


Extracts of the Restated Consolidated Statement of Cash Flows


Ratios


Peer Comparison
They are a coal mining company and there is no other listed peer in India with which they can be compared with.
(Source: Red Herring Prospectus)


Glossary
􀂃 Measured Resources - That part of a mineral resource for which quantity, grade or quality, densities, shape, physical
characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate
application of technical and economic parameters, to support production planning and evaluation of the economic
viability of the deposit.
􀂃 Indicated Resources - That part of a mineral resource for which quantity, grade or quality, densities, shape and
physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of
technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit
􀂃 Inferred Resources -That part of a mineral resource for which tonnage, densities, shape, physical characteristics,
grade and mineral content can be estimated with a low level of confidence.
􀂃 Proved Reserves -The economically mineable part of a Measured Mineral Resource
􀂃 Probable Reserves -The economically mineable part of an Indicated Mineral Resource, and in some cases
Measured Mineral Resource
􀂃 Beneficiation / washing – Process for cleaning of coal


Please refer to the Red Herring Prospectus for Risk Factors.



Thanks,
Gaurav Agarwal
Head Dealer
DENIP Consultants Pvt Ltd