The need for raw material integration for its European operations is keeping Tata Steel officials busy. The company has initiated talks with the government of British Columbia, a Canadian province, to acquire coking coal mines, sources say.
An official close to the development said that Tata officials and ministers of the BC province met in Canada two weeks earlier, where the latter offered to sell coking coal mines to the company.
The official said, "The ministers made a proposal to sell virgin coking coal mines and Tata Steel is fairly interested."
Repeated reminders to Tata Steel for a comment did not gather any response.
The official said Tata was keen to acquire a coking coal mine for its European operations, which have zero raw material integration.
Adding, "The various projects in Canada and Mozambique that could integrate Tata Steel Europe's raw material by up to 25 per cent will not come before 2012-13.
The company needs to find more mines as coking coal prices continue to go up, pressurising the margins for the company."
Anglo American, the leading global miner, recently signed coking coal contracts with a few steel companies for the April-June quarter at $330 per tonne, up by 47 per cent from the previous quarter.
A top official from a rival steelmaker, who wished not to be named, said, "Its (coking coal prices at $330 per tonne) a complete aberration. Today pricing power is lying with them, so if they say $330 per tonne, it is $330 per tonne."
He said it appeared contract prices for the April-June quarter would be settled at above $300 per tonne but below $330 per tonne.
On Tata Steel Europe's raw material integration, iron ore from its Canadian DSO project is expected to reach its mills from 2012 onwards.
So is coking coal from the Benga project at Mozambique. Tata Steel has 100 per cent offtake at the DSO project, which will be producing four million tonnes of iron ore every year from 2012.
The company has a right over 35 per cent of coal production at Benga, which is expected to begin with five mt coal production from next year.
Another official close to the talks said the British Columbian government was very keen on Tata Steel investing in the province.
The official said, "Tata Steel is very aggressive with buying coking coal assets for its European operations and was ready to pay an upfront amount at the meeting if the ministers were ready to offer a mine right there. That's how serious the company is."
British Columbia is the western-most of Canada's 10 provinces and is very rich in coking coal.
The website of the government says, "There is estimated to be an ultimate coal resource available for surface or shallow underground mining of over 20 billion tonnes in the province. The coal resource to a depth of 2,000 metres that is of interest for coalbed methane exploration is over 250 billion tonnes."
An analyst with a foreign research firm, who wished not to be named, said, "It makes perfect sense for Tata Steel to look at British Columbia for coking coal. Transportation to its steel plants in the UK would be easier and faster than getting coal from other regions.
Also, the kinds of reserves that Tata Steel could land up with after exploration can be quite substantial."
