Tata Steel has bought a stake in a coking coal mining project in Mozambique as part of an emerging overseas "coal rush" by India's steel and power companies keen to secure scarce raw materials.
The Indian steelmaker, which bought the Mozambique project with Australia-listed Riversdale Mining, sees the mine as essential in ensuring it has a sustainable supply of coking coal.
"This is not the last investment," Koushik Chatterjee, Tata Steel chief financial officer, said.
"We are constantly looking at other places for newer investments in coking coal and iron ore, as this will help us in increasing our raw material security."
Tata Steel, the world's sixth-largest steelmaker after the £6.7bn ($13.7bn) acquisition of Anglo-Dutch group Corus, joins a growing queue of Indian companies scouring globally for coal mines.
The contest for overseas coal resources has added a new front to India's already fierce battle with China for offshore oil and gas fields.
The Indian government this month approved a special-purpose vehicle controlled by state-owned coal, power and steel companies to buy foreign mines producing coking coal for steel-making and thermal coal for power generation.
"Mozambique is the only place in the world that is not very much explored and where you can still get some cheap coking coal assets," said Rakesh Arora, analyst with Macquarie in Mumbai.
Under the Mozambique deal, Tata Steel will pay A$100m ($88.3m) for a 35 per cent stake in a joint venture with Riversdale to develop the mine. It will receive rights to 40 per cent of the output from the project, which has inferred resources of 1.23bn tonnes, with an option to take more.
While Tata Steel derives 70 per cent of its coking coal needs from its own resources, Corus depends on the market for most of its raw materials.
Michael O'Keefe, chairman and chief executive officer of Riversdale Mining, said that while Australia and Canada between them controlled 80 per cent of the hard coking coal business, large consumers were beginning to seek other alternatives.
"India, western Europe and Brazil need to find a new emerging coal province and Mozambique is that province. There is nowhere else in that world that can deliver the quality and size," Mr O'Keefe said.
Glyn Lawcock, head of resources research at UBS Australia, said it was cheaper to enter such projects at the early stage.
