jspl: JSPL expects Australian mining unit to turn the corner from June

Jindal Steel & Power (JSPL) expects its Australian unit Wollongong Resources, which holds two coal mines and has been a drag on the consolidated financials, to become operationally viable from June this year as the company invests in improving production.

The company has no active plans to sell the unit, but it will also not like to take more losses on its account, managing director Bimlendra Jha told ET.

Of the two mines, only the Russel Vale mine is operational, but it is producing lower quality coking coal, which has resulted in significantly lower realisations than the prevailing market rates, Jha said. “The coking coal produced right now has high ash content, so it is being sold more like thermal coal.”

Subsequently, realisation dropped from $197 per tonne in the September quarter to $69 per tonne during the December quarter, the company’s executives mentioned during an analyst call this week.

Coking coal is generally more expensive than thermal coal and is used in blast furnaces to make molten iron from ore. Thermal coal is generally preferred for other industrial applications and for power generation.

Moreover, production remains at around 50,000 tonnes a month against the mine’s approval of 100,000 tonnes.

The company will be investing in enhancing the production capacity as well as in coal beneficiation to counter the situation. The operations “should come in the positive territory by June or July,” Jha told ET. The investments required are not significant, he added.The second coal mine held by Wollongong Resources, called the Wongawilli Mine, is under “Care & Maintenance”, the company said in response to ET’s queries. It is expected to be partially operational by FY24.

Analysts at Motilal Oswal noted in a report this week that the incremental coking coal production from the Australian unit as well as the company’s mines in Mozambique would be positive for its financials.

A Mauritius-based subsidiary of JSPL had acquired a majority stake in the assets in October 2013. The mines were shut in 2015 following sharp losses and operational hurdles, as per media reports. Russel Vale, the oldest mine in Australia with mining starting in 1887, resumed operations in 2021.

The running cost versus price realisation at the mine is still marginally negative, Jha said. But the company plans to turn operations around and keep the mine as a “natural hedge” against fluctuating coking coal prices, he said.

“But obviously we cannot predict the future. If things are not going well consistently then we would not like to take those losses any further,” he said.

Coking coal is one of the biggest costs for primary steel makers and prices have again started a northward march, touching almost $350 per tonne compared to around $200 three months ago.

JSPL stock has gained almost 52% in the past six months. It closed 1.34% higher at Rs 582.70 on the BSE on Friday.