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Thursday, 12 November 15
FOREIGN COAL MINE ACQUISITION - STRATEGY VERSUS OPPORTUNITY FOR INDIAN UTILITIES - DIPESH DIPU
.jpg) The acquisition market for thermal coal assets abroad is dull. Sellers of all hues are in the market; some are actively scouting for buyers while others, hoping against hope that someone looking to buy might knock the door and hence, are their running operations even in cash losses. The coal assets were acquired by many Indian power utilities and commodity trading companies, and some were acquired even leading to unrelated diversification. Indonesia was the toast of coal mine acquisition investments from Indian companies, while there were big investments in Australia, South Africa and other countries too. Why now, when the quoted asset prices are all time low, most Indian investors are shying away when the contrarian strategy would typically require one to grab the opportunity?
The global prices of thermal coal are lower than the March 2009 levels, a lowest observed in a decade after the fall due to global financial crisis. Costs on the other hand have been rising, marginal costs of mining in Australia for a large percentile of coal mines is upward of US $ 60 per tonne, which is nearly the price they fetch for high grade coal. Percentiles for South African and Indonesian mines are better as these are the lowest cost producers in the world. It is common sense that when the commodity price is low, below the marginal cash cost of production, it is advisable to buy the lowest cost producer, which will survive and benefit once the commodity price recovers after the more expensive players are forced out of the market. Now, when the coal prices are lower than the marginal costs and there are several low cost producers willing to sell or have been forced to sell due to financial distress, the absence of buyers indicates only one thing – the concern about price recovery.
Global thermal coal prices had been stable in nominal terms through the mid-1970s till 2003, almost range-bound from US$ 25-35 per tonne. This essentially meant that in real terms prices fell through the three decades. However, since then demand led price hikes scaled new peaks every year and reached close to US$ 200 per tonne in July 2008. The global meltdown in the aftermath of financial crisis led to coal prices tumbling down to US$ 60-65 per tonne in March 2009 before heading back to US$ 135-140 per tonne by early 2011. And since then, there has been a constant downward trend that remains unabated till now.
China has been a prime mover of the global coal industry. The prices turned to its peaks when China became a net importer of coal in 2008-09. In 2014-15, domestic production of coal in China has seen a slowdown due to cost pressures, while its imports have fallen as well by nearly a third from last year. It is being considered that for cleaner environment, China is attempting to lower its dependence on coal-based power generation. While in India, domestic coal supply scenario has improved on two counts - Coal India and SCCL have improved production, and the demand for coal hasn’t picked up as expected. This has led to thermal coal imports falling albeit at a slow pace. Indian power generation capacity addition which was rapid in 2009-2012 has taken a hit, largely due to fuel crisis during that period, apart from challenges such as delays in approvals and clearances and resulting financing constraints. Coal India has also embarked upon a near-1 billion tonnes per annum production by 2020, which may improve domestic coal supplies, while capacity addition growth in power generation may take some time as investor confidence returns to the sector. China and India, thus, do not paint a picture of global coal price recovery soon.
US coal companies are faced with existential questions and have begun to look at the international markets for exports, given that local demand has suffered due to environmental protection laws. Australia also seems to have oversupply challenge. Several key projects that could have further enhanced coal production in Bowen and Galilee basins are now mothballed. Japan has plans to increase coal based generation that will positively impact the demand for coal, but that may not absorb the high oversupplies already in the market.
The other significant disruptor for coal sector has been the emergence of renewable energy, solar power in particular, with scalability and economics gradually tilting in their favour. On a total cost basis, including environmental costs, the inflexion point between coal based and solar power seems to have been reached. The pace of change in technology in these renewables is high, which has resulted in fall of solar power tariffs from Indian Rupees (INR) 12-15 per unit in 2009-10 to INR 4.63 in the recently concluded bids by NTPC. The trend of falling tariffs in solar power coupled with scalabilities that till recently were not considered achievable brought coal based power generation to the inflexion point. While concerns about quality of supplies may persist for some time, suffice it to say that the disruption in coal sector is imminent and inevitable, and that may have an impact on global coal prices.
Given these, it may be optimistic to evaluate coal assets on a price recovery outlook. It may make sense to invest in the assets that may sustain profitability at slightly lower than current prices, possibly in the marginal cost range of US$ 35-45 per tonne for coal of 5000-6000 kCal/kg gross calorific values on as received basis. Investors should prefer operating assets, which may not have construction and development risks as well as risks of permits. Essentially, with these, the investors also need to look at regulatory risks in the destination country.
Indonesian coal sector has been in a flux and has led to enhanced perception of regulatory risks even though from the logistics and mining costs points of view, it may appear the favourable place to buy coalmines. The divestment clause that restricts foreign ownership and eventually makes a foreign buyer a minority stakeholder has the potential to restrict investments only to smaller projects where reserves can be exhausted before a mine transfers ownership. South Africa and southern African countries like Mozambique, Malawi, Zimbabwe, Namibia and Botswana have challenges of logistics even though the regulatory regimes are favourable. Mozambique, for instance, has only one operating Sena rail link connecting the coalfields in Tete to Beira port, which is already running at capacity, and is about 900 kilometers. Infrastructure development plans are now doubtful given the concern of coal price recoveries. Australia has challenges of higher cost of production, compliance costs and higher logistics costs, particularly for coal assets in Galilee basin.
Given these, the attractiveness of coal mine acquisition is low even though the low asset prices provide opportunities. As reported in the national newspapers, Indian government owned companies seem to be scouting for assets, which is far more challenging for them given their approach and methodologies for acquisition. Tendering route may be considered the least efficient for such acquisition as the market size in such tenders gets limited to only those assets who choose to respond to the tenders. It is a passive approach which gets hampered by inefficiencies in information channels as well and may not reach the potential sellers with good assets. In my recently concluded assignments for a few of such government-owned companies, it was observed that most bidders turned out to be Indian companies that invested abroad and have not been able to develop the coal assets well for themselves. For success in the market, it is required that ground work is done privately to assess target zones and identify strategically fitting assets and then approach the owners to nudge them to sell. This, however, may be tough for the government-owned companies in light of their internal processes, which obviously have not been designed for such acquisitions.
For Indian companies to acquire foreign coal assets, it is critical that they identify their strategic objectives and not go by the opportunities the market seemingly provides in terms of large number of sellers in the market willing to sell at relatively low prices. Private sector companies have better procedural manoeuvrability while government-owned companies get tied up in their own processes to effectively acquire assets that fit them. In any case, the long term price outlook being uncertain, investors need to tread with caution and pick assets that may sustain profitability even with worse forecasts. Else, the winners curse follows.
By Dipesh Dipu
Energy, Natural Resources and Infrastructure Expert
India
Views and opinions / conclusion expressed herein are personal views of the author and not that of COALspot.com.
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Monday, 11 July 16
THE MAIN SEA FREIGHT INDEX, BDI ROSE FURTHER ON 8 JULY DUE TO STRONG DEMAND FOR PANAMAX SHIPS
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose this past week. The BDI was up 3.84 percent from las ...
Monday, 11 July 16
DRY BULK MARKET: UP TO 30 MILLION DWT OF OLDER BULKERS WILL NEED TO BE SCRAPPED BY END OF 2017 FOR MARKET TO FIND BALANCE
Tonnage oversupply in the dry bulk market is more than evident, as newbuildings have been hitting the water faster than owners can scrap their olde ...
Friday, 08 July 16
U.S. WEEKLY COAL OUTPUT UP 3% TO 14.1 MMST - EIA
COALspot.com – U.S, world’s second largest coal producers has produced approximately totalled an estimated 14.1 million short tons (mms ...
Thursday, 07 July 16
PANAMAX : THE TENDENCY FROM LAST WEEK CONTINUES WITH A CONSIDERABLY STRONGER SENTIMENT ALL ACROSS THE BLOCK - FEARNLEYS
Capesize
Rates have been holding at steady levels over the last weeks but towards end of this period they are becoming under more pressure as gen ...
Thursday, 07 July 16
CONSOLIDATION TO RULE OVER SHIPPING, AS EXECUTIVES SEEK INVESTMENT OPPORTUNITIES IN CHINA, INDIA AND EUROPE SAYS NORTON ROSE SURVEY
The transport sector is looking to Asia Pacific as the key market for investment over the next five years, according to the seventh The way ahead T ...
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Showing 2366 to 2370 news of total 6871 |
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- Eastern Energy - Thailand
- Kapuas Tunggal Persada - Indonesia
- San Jose City I Power Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Wilmar Investment Holdings
- Global Business Power Corporation, Philippines
- Indonesian Coal Mining Association
- TeaM Sual Corporation - Philippines
- Medco Energi Mining Internasional
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Banpu Public Company Limited - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Independent Power Producers Association of India
- Australian Coal Association
- Miang Besar Coal Terminal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Price Waterhouse Coopers - Russia
- South Luzon Thermal Energy Corporation
- Maheswari Brothers Coal Limited - India
- IHS Mccloskey Coal Group - USA
- Kumho Petrochemical, South Korea
- Meralco Power Generation, Philippines
- Parry Sugars Refinery, India
- Indo Tambangraya Megah - Indonesia
- Australian Commodity Traders Exchange
- Baramulti Group, Indonesia
- Tata Chemicals Ltd - India
- Bulk Trading Sa - Switzerland
- India Bulls Power Limited - India
- Carbofer General Trading SA - India
- Commonwealth Bank - Australia
- Goldman Sachs - Singapore
- New Zealand Coal & Carbon
- Indika Energy - Indonesia
- Bhatia International Limited - India
- Siam City Cement PLC, Thailand
- Samtan Co., Ltd - South Korea
- PowerSource Philippines DevCo
- ICICI Bank Limited - India
- Bukit Baiduri Energy - Indonesia
- Gujarat Sidhee Cement - India
- Petron Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Posco Energy - South Korea
- Merrill Lynch Commodities Europe
- Bayan Resources Tbk. - Indonesia
- Xindia Steels Limited - India
- Uttam Galva Steels Limited - India
- Manunggal Multi Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Videocon Industries ltd - India
- Krishnapatnam Port Company Ltd. - India
- Alfred C Toepfer International GmbH - Germany
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- Meenaskhi Energy Private Limited - India
- VISA Power Limited - India
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Coastal Gujarat Power Limited - India
- Global Coal Blending Company Limited - Australia
- Ambuja Cements Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Straits Asia Resources Limited - Singapore
- Oldendorff Carriers - Singapore
- Coal and Oil Company - UAE
- Metalloyd Limited - United Kingdom
- Aditya Birla Group - India
- Port Waratah Coal Services - Australia
- OPG Power Generation Pvt Ltd - India
- Malabar Cements Ltd - India
- SMC Global Power, Philippines
- Chettinad Cement Corporation Ltd - India
- Altura Mining Limited, Indonesia
- The University of Queensland
- Mercuria Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Lanco Infratech Ltd - India
- The State Trading Corporation of India Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Agrawal Coal Company - India
- Siam City Cement - Thailand
- Georgia Ports Authority, United States
- Bukit Makmur.PT - Indonesia
- Singapore Mercantile Exchange
- Electricity Generating Authority of Thailand
- Timah Investasi Mineral - Indoneisa
- Karaikal Port Pvt Ltd - India
- Energy Development Corp, Philippines
- Mintek Dendrill Indonesia
- Binh Thuan Hamico - Vietnam
- MS Steel International - UAE
- SN Aboitiz Power Inc, Philippines
- Riau Bara Harum - Indonesia
- Tamil Nadu electricity Board
- Eastern Coal Council - USA
- Leighton Contractors Pty Ltd - Australia
- Anglo American - United Kingdom
- Electricity Authority, New Zealand
- AsiaOL BioFuels Corp., Philippines
- Standard Chartered Bank - UAE
- Sarangani Energy Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Sree Jayajothi Cements Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Central Java Power - Indonesia
- Mercator Lines Limited - India
- PTC India Limited - India
- LBH Netherlands Bv - Netherlands
- Petrochimia International Co. Ltd.- Taiwan
- Kepco SPC Power Corporation, Philippines
- Indian Energy Exchange, India
- Borneo Indobara - Indonesia
- GAC Shipping (India) Pvt Ltd
- Iligan Light & Power Inc, Philippines
- SMG Consultants - Indonesia
- Jaiprakash Power Ventures ltd
- Sical Logistics Limited - India
- Deloitte Consulting - India
- GN Power Mariveles Coal Plant, Philippines
- Holcim Trading Pte Ltd - Singapore
- Attock Cement Pakistan Limited
- Dalmia Cement Bharat India
- Pipit Mutiara Jaya. PT, Indonesia
- Formosa Plastics Group - Taiwan
- Indian Oil Corporation Limited
- Globalindo Alam Lestari - Indonesia
- Heidelberg Cement - Germany
- Vizag Seaport Private Limited - India
- Salva Resources Pvt Ltd - India
- Minerals Council of Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Jindal Steel & Power Ltd - India
- ASAPP Information Group - India
- Directorate Of Revenue Intelligence - India
- Kobexindo Tractors - Indoneisa
- Edison Trading Spa - Italy
- Parliament of New Zealand
- Economic Council, Georgia
- Simpson Spence & Young - Indonesia
- McConnell Dowell - Australia
- Energy Link Ltd, New Zealand
- Bharathi Cement Corporation - India
- GMR Energy Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Coalindo Energy - Indonesia
- Marubeni Corporation - India
- Barasentosa Lestari - Indonesia
- Indogreen Group - Indonesia
- Thiess Contractors Indonesia
- Orica Australia Pty. Ltd.
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- Kartika Selabumi Mining - Indonesia
- Larsen & Toubro Limited - India
- CIMB Investment Bank - Malaysia
- Makarim & Taira - Indonesia
- CNBM International Corporation - China
- London Commodity Brokers - England
- Romanian Commodities Exchange
- Sindya Power Generating Company Private Ltd
- GVK Power & Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Trasteel International SA, Italy
- Semirara Mining Corp, Philippines
- IEA Clean Coal Centre - UK
- PetroVietnam Power Coal Import and Supply Company
- International Coal Ventures Pvt Ltd - India
- White Energy Company Limited
- Thai Mozambique Logistica
- Bhushan Steel Limited - India
- Ministry of Transport, Egypt
- Antam Resourcindo - Indonesia
- Aboitiz Power Corporation - Philippines
- PNOC Exploration Corporation - Philippines
- Madhucon Powers Ltd - India
- Sojitz Corporation - Japan
- Latin American Coal - Colombia
- Jorong Barutama Greston.PT - Indonesia
- Renaissance Capital - South Africa
- Africa Commodities Group - South Africa
- Cement Manufacturers Association - India
- The Treasury - Australian Government
- Bhoruka Overseas - Indonesia
- Interocean Group of Companies - India
- Wood Mackenzie - Singapore
- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Mines - Canada
- Ind-Barath Power Infra Limited - India
- Grasim Industreis Ltd - India
- Ministry of Finance - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Gujarat Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Chamber of Mines of South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Sakthi Sugars Limited - India
- Kideco Jaya Agung - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- European Bulk Services B.V. - Netherlands
- Planning Commission, India
- Star Paper Mills Limited - India
- Central Electricity Authority - India
- Sinarmas Energy and Mining - Indonesia
- Toyota Tsusho Corporation, Japan
- Gujarat Mineral Development Corp Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Karbindo Abesyapradhi - Indoneisa
- Billiton Holdings Pty Ltd - Australia
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
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