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World's Largest Coal Producer Plans $555 Million Savings by Using Machines

Coal India Ltd., the world’s largest producer of the fuel, may save about 25 billion rupees ($555 million) in employee costs over the next 10 years as it increases the use of machines at its mines.

“The total number of employees will come down because of mechanization and through natural attrition,” Partha Bhattacharyya, chairman of the Kolkata-based company, said in a telephone interview today. “The savings will help us boost our bottom line.”

Coal India, which is planning the country’s biggest share sale, may reduce its employee strength by 25 percent in 10 years from 400,000 currently, including workers at older mines that yield 8 percent of total output. The company increased coal prices by 10 percent to 15 percent in October after additional expenses from a wage revision.

“Automation is essential and that helps mining companies boost production,” said Deven Choksey, chief executive officer at K.R. Choksey Shares & Securities in Mumbai, who manages about $123 million for wealthy individuals. “If they can do this, then investors will definitely give them the thumbs-up.”

Coal India is targeting output of 460.5 million tons of coal in the year ending March, compared with 431.34 million tons a year earlier, Bhattacharyya said April 26.

Profit may also be boosted as the company sets up processing units known as washeries to increase the calorific value of coal. Higher calorific coal, which emits more heat when burnt, can help to raise prices by about 50 percent from present levels, Bhattacharyya said, without giving details.

IPO Bankers

The government plans to raise as much as 130 billion rupees selling shares in Coal India this year, two government officials with direct knowledge of the sale said April 19. The sale would overtake Reliance Power Ltd.’s 115.63 billion rupee offering in January 2008 as India’s biggest, according to data compiled by Bloomberg.

The miner is awaiting approval for the initial public offering from India’s cabinet, after which bankers will be appointed, Bhattacharyya said. The share-sale documents will be filed with the market regulator within six weeks of naming the bankers, he said.

Citigroup Inc. and DSP Merrill Lynch & Co. are among six investment banks set to manage Coal India’s share sale, two bankers with direct knowledge of the matter said this month. Deutsche Bank AG, Morgan Stanley, Enam Securities Pvt. and Kotak Mahindra Capital Co. may also win the mandate, they said.

Share Price

The price of the shares will be decided by a group of ministers, Bhattacharyya said. The company may price its initial public offering at 200 rupees a share, the Economic Times reported May 5, citing an official it didn’t identify.

Coal India’s net worth was a provisional 245 billion rupees on March 31, according to a statement on the company’s website. The company made a profit of 83.12 billion rupees on gross sales of 521 billion rupees in the year ended March 31, according to provisional figures on the website.

Coal India is seeking to buy stakes in mines overseas and is studying proposals from three companies, including two owned by Peabody Energy Corp. in the U.S. and Australia, Bhattarcharyya said. The company may spend $1.7 billion to buy the stakes, he said April 26.

At least one deal may be completed in the next three to four months, he said today, without giving specific details.

Coal India appointed Bank of America Merrill Lynch, Royal Bank of Scotland Group Plc and Royal Bank of Canada to do due diligence on the mines, Bhattacharyya said April 26.

China Shenhua Energy Co., the nation’s biggest coal-mining company, increased output by 13 percent last year to 210.3 million tons. Peabody Energy Corp., the largest U.S. coal producer, said in January that it planned to sell 240 million to 260 million tons of coal this year, compared with 243.6 million in 2009.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net.

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