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Sunday, December 22, 2013

‘Underground mines hit Coal India profits’

Underground coal production is turning out to be a drag for the world's largest producer, Coal IndiaBSE -0.14 %. During 2012-13, under recoveries on coal produced from underground mines, which employs 8 per cent of its employees, is estimated at Rs12,830 crore, SES, a corporate governance research and advisory firm has inferred in its report prepared last week.
The research firm has concluded that if CILBSE -0.14 % produced only from open cast mines its production would have been lower by 10 per cent but its gross profit would have been higher by almost 50 per cent. Here, SES has, however, assumed that a large part of its manpower employed in underground mines is redeployed in other open cast mines. This, however, may not be practically possible as existing open cast mines may not be able to employ all employees of underground mines.
"It is a fact that production from underground mines is costlier due to various factors. Some mines are legacy mines which CIL inherited when the company was formed some 40-years ago. We do not differentiate between the coal produced from underground mines or open cast mines - coal is sold on the basis of the energy content in them," said a senior CIL director.
"However, we have also embarked on the concept of cost plus mines. Mines that are not viable economically are being taken up for these schemes where consumers pay a price that covers the cost of production and also includes certain margin. At present there are about 7 cost plus mines in Western Coalfileds, a CIL subsidiary. However, as we go deeper cost of production will keep rising and we intend to convert mines into cost plus also," he said. Productivity from under ground mines is very low compared to open cast ones. Capital cost per ton for underground mines is also much higher than open cast mine.
Productivity has been consistently lower across all subsidiaries of CIL. The difference in productivity per man-shift on average in 2012-13 was 1 per cent times during 2012-13. Underground mines had 1/1 per centth productivity per man shift compared to opencast mines.
Contribution from underground operations has pulled down average productivity of 11.48 ton /Man Shift to per cent.32 tons per man shift, a drop of more than per cent0 per cent.
According to estimates by the research firm, during 2012-13 cost of coal production from underground mines was Rs4,866 per tonne, while average cost of production was Rs1,121 per tonnes. During the year CIL produced 37.78 million tonnes from underground mines. However, average realisation for coal sold was about Rs1,470 per tonne. Hence, under recovery for underground mines is about Rs3,396 per tonne. Therefore, loss from underground mines is estimated at Rs12,830 crore.
Total gross profit for the year was Rs2 per cent,024 crore. However, if CIL did not produce coal from underground mines, the profit would have been Rs37,8 per cent4 crore, SES has estimated. Nevertheless, average cost of pro duction increased from Rs744 per tonne in 2010 to Rs1,121 in 2012-13, a per cent1 per cent rise. Whereas during the same period average realisation improved from Rs103 per cent per tonne to Rs1470 per tonne.

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