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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, 25 May 16
DRY BULK SNP MARKET DISPLAYS SIGNS OF STRENGTH - GEORGE ILIOPOULOS
Only a couple of weeks away from the world’s most prominent maritime event, the market for tankers displays an evident lack of confidence in ...
Tuesday, 24 May 16
WEEKLY CS COAL INDICES NEGATIVE FOR ALL TYPES OF COAL EXCEPT 3800 GAR COAL
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Monday, 23 May 16
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Monday, 23 May 16
THE PANAMAX INDEX WAS UP 17 POINTS W/W
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The freight market was firm and all ...
Friday, 20 May 16
SHIPBUILDING CONTRACTS: CAN I CANCEL? SHOULD I CANCEL? - THE SHIPOWNER CLUB
KNOWLEDGE TO ELEVATE
There are many circumstances in which a buyer of a new-build vessel might want to terminate or cancel their contract with ...
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Showing 2421 to 2425 news of total 6871 |
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- GMR Energy Limited - India
- Karaikal Port Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Latin American Coal - Colombia
- Sical Logistics Limited - India
- PetroVietnam Power Coal Import and Supply Company
- The State Trading Corporation of India Ltd
- Star Paper Mills Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Anglo American - United Kingdom
- Energy Link Ltd, New Zealand
- Bukit Baiduri Energy - Indonesia
- Minerals Council of Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Port Waratah Coal Services - Australia
- Price Waterhouse Coopers - Russia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Miang Besar Coal Terminal - Indonesia
- Interocean Group of Companies - India
- Petron Corporation, Philippines
- Cement Manufacturers Association - India
- Neyveli Lignite Corporation Ltd, - India
- Jindal Steel & Power Ltd - India
- Mjunction Services Limited - India
- Coastal Gujarat Power Limited - India
- Ind-Barath Power Infra Limited - India
- PTC India Limited - India
- Ministry of Mines - Canada
- Deloitte Consulting - India
- Indika Energy - Indonesia
- Indonesian Coal Mining Association
- Mintek Dendrill Indonesia
- Bhatia International Limited - India
- Intertek Mineral Services - Indonesia
- Kartika Selabumi Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Eastern Coal Council - USA
- Cigading International Bulk Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- European Bulk Services B.V. - Netherlands
- Planning Commission, India
- Electricity Generating Authority of Thailand
- Semirara Mining and Power Corporation, Philippines
- Posco Energy - South Korea
- Savvy Resources Ltd - HongKong
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Agrawal Coal Company - India
- Aboitiz Power Corporation - Philippines
- Tata Chemicals Ltd - India
- Independent Power Producers Association of India
- Sinarmas Energy and Mining - Indonesia
- Romanian Commodities Exchange
- Energy Development Corp, Philippines
- Parry Sugars Refinery, India
- Tamil Nadu electricity Board
- Global Business Power Corporation, Philippines
- Sojitz Corporation - Japan
- Marubeni Corporation - India
- Meenaskhi Energy Private Limited - India
- The University of Queensland
- Kumho Petrochemical, South Korea
- Antam Resourcindo - Indonesia
- IHS Mccloskey Coal Group - USA
- SMC Global Power, Philippines
- Vedanta Resources Plc - India
- Sindya Power Generating Company Private Ltd
- Coalindo Energy - Indonesia
- Oldendorff Carriers - Singapore
- Riau Bara Harum - Indonesia
- Indian Energy Exchange, India
- Gujarat Sidhee Cement - India
- Simpson Spence & Young - Indonesia
- Jaiprakash Power Ventures ltd
- Samtan Co., Ltd - South Korea
- CIMB Investment Bank - Malaysia
- Global Coal Blending Company Limited - Australia
- Essar Steel Hazira Ltd - India
- Power Finance Corporation Ltd., India
- Vijayanagar Sugar Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Bharathi Cement Corporation - India
- Trasteel International SA, Italy
- Uttam Galva Steels Limited - India
- Central Electricity Authority - India
- Chamber of Mines of South Africa
- Georgia Ports Authority, United States
- Larsen & Toubro Limited - India
- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Sakthi Sugars Limited - India
- Gujarat Electricity Regulatory Commission - India
- IEA Clean Coal Centre - UK
- Bhoruka Overseas - Indonesia
- McConnell Dowell - Australia
- PowerSource Philippines DevCo
- Bangladesh Power Developement Board
- Malabar Cements Ltd - India
- Therma Luzon, Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Maharashtra Electricity Regulatory Commission - India
- India Bulls Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Mercator Lines Limited - India
- Kepco SPC Power Corporation, Philippines
- Wilmar Investment Holdings
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Toyota Tsusho Corporation, Japan
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- Ambuja Cements Ltd - India
- Rashtriya Ispat Nigam Limited - India
- ASAPP Information Group - India
- GAC Shipping (India) Pvt Ltd
- Goldman Sachs - Singapore
- The Treasury - Australian Government
- Asmin Koalindo Tuhup - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Globalindo Alam Lestari - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- OPG Power Generation Pvt Ltd - India
- CNBM International Corporation - China
- Gujarat Mineral Development Corp Ltd - India
- Banpu Public Company Limited - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Thiess Contractors Indonesia
- Indian Oil Corporation Limited
- Thai Mozambique Logistica
- Billiton Holdings Pty Ltd - Australia
- Central Java Power - Indonesia
- Sree Jayajothi Cements Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Edison Trading Spa - Italy
- Karbindo Abesyapradhi - Indoneisa
- Eastern Energy - Thailand
- Global Green Power PLC Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Ministry of Transport, Egypt
- Formosa Plastics Group - Taiwan
- San Jose City I Power Corp, Philippines
- VISA Power Limited - India
- Iligan Light & Power Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Vizag Seaport Private Limited - India
- SN Aboitiz Power Inc, Philippines
- Merrill Lynch Commodities Europe
- GVK Power & Infra Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Xindia Steels Limited - India
- South Luzon Thermal Energy Corporation
- Borneo Indobara - Indonesia
- Parliament of New Zealand
- Economic Council, Georgia
- Meralco Power Generation, Philippines
- Barasentosa Lestari - Indonesia
- Salva Resources Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Rio Tinto Coal - Australia
- Renaissance Capital - South Africa
- Medco Energi Mining Internasional
- Manunggal Multi Energi - Indonesia
- Altura Mining Limited, Indonesia
- Indogreen Group - Indonesia
- PNOC Exploration Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Siam City Cement PLC, Thailand
- Pendopo Energi Batubara - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Standard Chartered Bank - UAE
- Australian Coal Association
- Heidelberg Cement - Germany
- TNB Fuel Sdn Bhd - Malaysia
- ICICI Bank Limited - India
- Binh Thuan Hamico - Vietnam
- Kapuas Tunggal Persada - Indonesia
- Electricity Authority, New Zealand
- Straits Asia Resources Limited - Singapore
- Australian Commodity Traders Exchange
- Bayan Resources Tbk. - Indonesia
- White Energy Company Limited
- Aditya Birla Group - India
- MS Steel International - UAE
- TeaM Sual Corporation - Philippines
- Baramulti Group, Indonesia
- Singapore Mercantile Exchange
- Grasim Industreis Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coal and Oil Company - UAE
- New Zealand Coal & Carbon
- Makarim & Taira - Indonesia
- Commonwealth Bank - Australia
- SMG Consultants - Indonesia
- Kideco Jaya Agung - Indonesia
- Lanco Infratech Ltd - India
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- Attock Cement Pakistan Limited
- Kobexindo Tractors - Indoneisa
- Sarangani Energy Corporation, Philippines
- Carbofer General Trading SA - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Timah Investasi Mineral - Indoneisa
- Bukit Makmur.PT - Indonesia
- Bhushan Steel Limited - India
- Holcim Trading Pte Ltd - Singapore
- Wood Mackenzie - Singapore
- Maheswari Brothers Coal Limited - India
- Directorate Of Revenue Intelligence - India
- Madhucon Powers Ltd - India
- Ministry of Finance - Indonesia
- Orica Mining Services - Indonesia
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