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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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Wednesday, 01 June 16
INDIA'S COAL IMPORTS IN APRIL 2016 DECLINED 15% Y/Y; COAL INDIA INCREASED COAL PRICES BY 6.2%
Coal India has approved raising weighted average coal prices by 6.2 per cent over the current price for both regulated and non-regulated sectors.
...
Wednesday, 01 June 16
ZERO SUPPLY TO FUEL GROWTH IN THE DRY BULK MARKET SAYS BIMCO PRESIDENT
The dry bulk market could become profitable again in 2019 – but only if a series of extremely tough and sustained measures are taken by shipo ...
Wednesday, 01 June 16
MARKET INSIGHT - LINOS KOGEVINAS
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Tuesday, 31 May 16
CS50 INDONESIA COAL INDEX UP 0.28% COMPARED WITH A WEEK AGO
COALspot.com: Average 5000 GAR coal index of Indonesian origin was up 0.28 percent week over week to averaging $39.01 per ton this past week, shows ...
Monday, 30 May 16
BORYEONG POWER PLANT TO IMPORT HALF A MILLION TONS OF BITUMINOUS COAL
COALspot.com: South Korea’s state-owned utility Korea Midland Power (KOMIPO) issued a new tender for 500,000 Metric Tons of Bituminous Coal T ...
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Showing 2411 to 2415 news of total 6871 |
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- Price Waterhouse Coopers - Russia
- Commonwealth Bank - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- New Zealand Coal & Carbon
- Georgia Ports Authority, United States
- Tata Chemicals Ltd - India
- Edison Trading Spa - Italy
- India Bulls Power Limited - India
- Aboitiz Power Corporation - Philippines
- Banpu Public Company Limited - Thailand
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Heidelberg Cement - Germany
- Bukit Baiduri Energy - Indonesia
- Ambuja Cements Ltd - India
- Carbofer General Trading SA - India
- Parliament of New Zealand
- Bhoruka Overseas - Indonesia
- Global Coal Blending Company Limited - Australia
- Goldman Sachs - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Simpson Spence & Young - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Videocon Industries ltd - India
- Standard Chartered Bank - UAE
- Marubeni Corporation - India
- Kaltim Prima Coal - Indonesia
- Straits Asia Resources Limited - Singapore
- Altura Mining Limited, Indonesia
- Karaikal Port Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Malabar Cements Ltd - India
- Meralco Power Generation, Philippines
- Riau Bara Harum - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Makarim & Taira - Indonesia
- London Commodity Brokers - England
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bulk Trading Sa - Switzerland
- Ministry of Mines - Canada
- Binh Thuan Hamico - Vietnam
- Bhatia International Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Madhucon Powers Ltd - India
- Coastal Gujarat Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Electricity Generating Authority of Thailand
- LBH Netherlands Bv - Netherlands
- Ind-Barath Power Infra Limited - India
- SMC Global Power, Philippines
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- Gujarat Mineral Development Corp Ltd - India
- Rio Tinto Coal - Australia
- McConnell Dowell - Australia
- Grasim Industreis Ltd - India
- Sical Logistics Limited - India
- Sarangani Energy Corporation, Philippines
- Vizag Seaport Private Limited - India
- VISA Power Limited - India
- Sinarmas Energy and Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Coal Council - USA
- Mercator Lines Limited - India
- Energy Link Ltd, New Zealand
- GVK Power & Infra Limited - India
- Lanco Infratech Ltd - India
- ICICI Bank Limited - India
- Pendopo Energi Batubara - Indonesia
- Semirara Mining Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Minerals Council of Australia
- Orica Australia Pty. Ltd.
- Antam Resourcindo - Indonesia
- Medco Energi Mining Internasional
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mintek Dendrill Indonesia
- Thai Mozambique Logistica
- Bharathi Cement Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Salva Resources Pvt Ltd - India
- Parry Sugars Refinery, India
- Tamil Nadu electricity Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indo Tambangraya Megah - Indonesia
- IEA Clean Coal Centre - UK
- CIMB Investment Bank - Malaysia
- Australian Commodity Traders Exchange
- Gujarat Electricity Regulatory Commission - India
- Electricity Authority, New Zealand
- PowerSource Philippines DevCo
- Oldendorff Carriers - Singapore
- Australian Coal Association
- Siam City Cement - Thailand
- GMR Energy Limited - India
- Ministry of Finance - Indonesia
- Agrawal Coal Company - India
- Billiton Holdings Pty Ltd - Australia
- AsiaOL BioFuels Corp., Philippines
- Wilmar Investment Holdings
- Interocean Group of Companies - India
- GAC Shipping (India) Pvt Ltd
- Kobexindo Tractors - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- SN Aboitiz Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- MS Steel International - UAE
- Sojitz Corporation - Japan
- Bangladesh Power Developement Board
- Barasentosa Lestari - Indonesia
- SMG Consultants - Indonesia
- Gujarat Sidhee Cement - India
- Indonesian Coal Mining Association
- TeaM Sual Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mercuria Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Indian Energy Exchange, India
- Savvy Resources Ltd - HongKong
- Romanian Commodities Exchange
- Mjunction Services Limited - India
- Eastern Energy - Thailand
- Krishnapatnam Port Company Ltd. - India
- Ministry of Transport, Egypt
- Maharashtra Electricity Regulatory Commission - India
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- Central Java Power - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bhushan Steel Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Samtan Co., Ltd - South Korea
- Wood Mackenzie - Singapore
- Indian Oil Corporation Limited
- Metalloyd Limited - United Kingdom
- Sree Jayajothi Cements Limited - India
- Cigading International Bulk Terminal - Indonesia
- Central Electricity Authority - India
- Chamber of Mines of South Africa
- Independent Power Producers Association of India
- Intertek Mineral Services - Indonesia
- Jaiprakash Power Ventures ltd
- Holcim Trading Pte Ltd - Singapore
- Singapore Mercantile Exchange
- Jindal Steel & Power Ltd - India
- Bayan Resources Tbk. - Indonesia
- Bukit Makmur.PT - Indonesia
- Economic Council, Georgia
- Dalmia Cement Bharat India
- Formosa Plastics Group - Taiwan
- Manunggal Multi Energi - Indonesia
- Port Waratah Coal Services - Australia
- Global Green Power PLC Corporation, Philippines
- Coal and Oil Company - UAE
- Therma Luzon, Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Vedanta Resources Plc - India
- Baramulti Group, Indonesia
- Kumho Petrochemical, South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
- Sakthi Sugars Limited - India
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- IHS Mccloskey Coal Group - USA
- Attock Cement Pakistan Limited
- Kideco Jaya Agung - Indonesia
- PTC India Limited - India
- Leighton Contractors Pty Ltd - Australia
- Africa Commodities Group - South Africa
- European Bulk Services B.V. - Netherlands
- Deloitte Consulting - India
- Pipit Mutiara Jaya. PT, Indonesia
- Posco Energy - South Korea
- Aditya Birla Group - India
- Larsen & Toubro Limited - India
- Renaissance Capital - South Africa
- Miang Besar Coal Terminal - Indonesia
- Indogreen Group - Indonesia
- Siam City Cement PLC, Thailand
- Bahari Cakrawala Sebuku - Indonesia
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- The University of Queensland
- Ceylon Electricity Board - Sri Lanka
- Kapuas Tunggal Persada - Indonesia
- Globalindo Alam Lestari - Indonesia
- Anglo American - United Kingdom
- Trasteel International SA, Italy
- Jorong Barutama Greston.PT - Indonesia
- Merrill Lynch Commodities Europe
- San Jose City I Power Corp, Philippines
- Energy Development Corp, Philippines
- White Energy Company Limited
- Orica Mining Services - Indonesia
- Xindia Steels Limited - India
- ASAPP Information Group - India
- Kartika Selabumi Mining - Indonesia
- Power Finance Corporation Ltd., India
- Indika Energy - Indonesia
- The Treasury - Australian Government
- Directorate Of Revenue Intelligence - India
- Petron Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Borneo Indobara - Indonesia
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