Coal India (NSE: COALINDIA) shares are up 4,7% on the back of two announcements. COALINDIA shares obviously benefit from the report that production is up. But there’s also another announcement in the annual results, that they’re going to invest outside India in critical metals. We think this has all the makings of a disaster to come. This is not just because we’re biased against state companies - although we are - it’s because the mining world has a name for those working outside their area of expertise - The Simple Shopper. Not knowing the field being invested in is going to mean investing on bad to very bad terms. This is just how that real world works out we’re afraid.
The first part of the results and current trading announcement is good: “Coal India Share Price: One-third of FY24 production target achieved in four months” and, well, yes, we’d rather hope so. Doing one third of the annual target in one third of the year seems pretty normal to us. Except that’s not quite what is meant. “Progressively CIL’s production soared to 229.1 MTs till July 2023 in the current financial year achieving 99 percent target satisfaction. The production is almost on track with the asking growth rate of the year.” The target for the year is to ramp up production and they’re achieving this early. Which is indeed good news.
Coal India share price from Google Finance
But there’s also this, which we consider to be a very bad idea: “As part of its pivot towards diversification and value chain integration, Coal India Limited (CIL), a Maharatna PSU, is exploring the acquisition of critical mineral assets, like Lithium Cobalt and Nickel, abroad, said the company in its latest annual report. “We are exploring the acquisition of lithium, cobalt, and nickel assets abroad and have amended our Memorandum of Association (MoA) to include non-ferrous and critical minerals. We are currently identifying suitable overseas assets for mergers and acquisitions,” said the annual report for the year 2022-23.”
What is, effectively, the Indian bureaucracy is going to go invest among the sharks of the global mining market? They’re going to get eaten alive, aren’t they?
Yes, we all know about critical metals. But to a great extent the markets have already peaked - the exploration activity is finding so much of them that lithium has halved in price, cobalt is currently below production costs (as Jervois showed). Coal India has no expertise in mining for critical metals, no expertise in mining outside India. This really isn’t going to work.
The mining industry has a phrase for people like this. The Simple Shopper. People who don;t know what they’re doing have a tendency to end up overpaying for bad projects. We’ll run with that as our prediction here.