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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, 12 June 24
CHINA ACCOUNTS FOR 16.3% OF AUSTRALIA'S COAL EXPORTS, FOLLOWED BY INDIA 14.4% - BANCHERO COSTA
Global coal trade has really picked up pace in recent months, and is now fully back to pre-Covid levels says Banchero Costa in its latest report.
...
Wednesday, 12 June 24
LNG NEWBUILDING VALUES AT RECORD HIGH: 78 NEWBUILD ORDERS PLACED IN 2024, DOUBLING 2023 - VESON NAUTICAL
The number of LNG newbuilding orders have more than doubled from the same period last year where 34 orders were placed, compared to 78 in the first ...
Monday, 10 June 24
CHINA'S MAY COAL IMPORTS RISE 11% ON LOWER DOMESTIC OUTPUT - REUTERS
China’s imports of coal rose 11% in May from a year earlier, customs data and Reuters records showed on Friday, as lower domestic output this ...
Tuesday, 04 June 24
HOW DO WESTERN SANCTIONS ON RUSSIA IMPACT THE GLOBAL METALS, MINING AND COAL MARKETS - WOOD MACKENZIE
The geopolitical landscape for Russia, as a major supplier of various commodities, has undergone a dramatic transformation since the invasion of Uk ...
Friday, 22 March 24
CASE STUDY: DANGERS OF COAL CARGO - SKULD
Recently, a bulk cargo vessel carrying coal from South Africa to Singapore suffered a fatal accident, resulting in the deaths of three crew members ...
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Showing 21 to 25 news of total 6871 |
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- The Treasury - Australian Government
- Sojitz Corporation - Japan
- Xindia Steels Limited - India
- Grasim Industreis Ltd - India
- Therma Luzon, Inc, Philippines
- Wilmar Investment Holdings
- Antam Resourcindo - Indonesia
- Mercuria Energy - Indonesia
- Indogreen Group - Indonesia
- The State Trading Corporation of India Ltd
- Bhoruka Overseas - Indonesia
- Eastern Coal Council - USA
- Indian Energy Exchange, India
- Borneo Indobara - Indonesia
- Indian Oil Corporation Limited
- Ministry of Mines - Canada
- Cement Manufacturers Association - India
- Marubeni Corporation - India
- Thai Mozambique Logistica
- Independent Power Producers Association of India
- SMC Global Power, Philippines
- Intertek Mineral Services - Indonesia
- Meralco Power Generation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Jorong Barutama Greston.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Formosa Plastics Group - Taiwan
- Mercator Lines Limited - India
- Alfred C Toepfer International GmbH - Germany
- Tata Chemicals Ltd - India
- Central Electricity Authority - India
- Latin American Coal - Colombia
- ASAPP Information Group - India
- Vizag Seaport Private Limited - India
- Deloitte Consulting - India
- Siam City Cement PLC, Thailand
- Port Waratah Coal Services - Australia
- The University of Queensland
- Metalloyd Limited - United Kingdom
- Commonwealth Bank - Australia
- Pendopo Energi Batubara - Indonesia
- White Energy Company Limited
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
- Vedanta Resources Plc - India
- Siam City Cement - Thailand
- Star Paper Mills Limited - India
- Bhatia International Limited - India
- SN Aboitiz Power Inc, Philippines
- Rio Tinto Coal - Australia
- Indika Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kartika Selabumi Mining - Indonesia
- Global Business Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Standard Chartered Bank - UAE
- Oldendorff Carriers - Singapore
- Goldman Sachs - Singapore
- McConnell Dowell - Australia
- Straits Asia Resources Limited - Singapore
- Romanian Commodities Exchange
- PTC India Limited - India
- Trasteel International SA, Italy
- SMG Consultants - Indonesia
- Thiess Contractors Indonesia
- VISA Power Limited - India
- Altura Mining Limited, Indonesia
- Aditya Birla Group - India
- GAC Shipping (India) Pvt Ltd
- Globalindo Alam Lestari - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Timah Investasi Mineral - Indoneisa
- Riau Bara Harum - Indonesia
- Essar Steel Hazira Ltd - India
- Bharathi Cement Corporation - India
- Sree Jayajothi Cements Limited - India
- CNBM International Corporation - China
- Malabar Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- LBH Netherlands Bv - Netherlands
- International Coal Ventures Pvt Ltd - India
- ICICI Bank Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Bukit Makmur.PT - Indonesia
- Coal and Oil Company - UAE
- IEA Clean Coal Centre - UK
- Semirara Mining Corp, Philippines
- Madhucon Powers Ltd - India
- Makarim & Taira - Indonesia
- Uttam Galva Steels Limited - India
- Lanco Infratech Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- GMR Energy Limited - India
- Minerals Council of Australia
- Orica Mining Services - Indonesia
- Wood Mackenzie - Singapore
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Gujarat Sidhee Cement - India
- Billiton Holdings Pty Ltd - Australia
- Electricity Generating Authority of Thailand
- Ambuja Cements Ltd - India
- Economic Council, Georgia
- Parliament of New Zealand
- Mjunction Services Limited - India
- OPG Power Generation Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- GVK Power & Infra Limited - India
- Medco Energi Mining Internasional
- Heidelberg Cement - Germany
- Kumho Petrochemical, South Korea
- Dalmia Cement Bharat India
- India Bulls Power Limited - India
- Mintek Dendrill Indonesia
- New Zealand Coal & Carbon
- Maheswari Brothers Coal Limited - India
- Eastern Energy - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Bulk Trading Sa - Switzerland
- Edison Trading Spa - Italy
- Krishnapatnam Port Company Ltd. - India
- Bhushan Steel Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- GN Power Mariveles Coal Plant, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Australian Commodity Traders Exchange
- Maharashtra Electricity Regulatory Commission - India
- Salva Resources Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Barasentosa Lestari - Indonesia
- Georgia Ports Authority, United States
- Baramulti Group, Indonesia
- Chamber of Mines of South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Orica Australia Pty. Ltd.
- South Luzon Thermal Energy Corporation
- Indonesian Coal Mining Association
- Bayan Resources Tbk. - Indonesia
- Ministry of Transport, Egypt
- PowerSource Philippines DevCo
- Rashtriya Ispat Nigam Limited - India
- Kobexindo Tractors - Indoneisa
- Energy Link Ltd, New Zealand
- Bangladesh Power Developement Board
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Planning Commission, India
- Cigading International Bulk Terminal - Indonesia
- Directorate Of Revenue Intelligence - India
- Africa Commodities Group - South Africa
- Renaissance Capital - South Africa
- Videocon Industries ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Electricity Authority, New Zealand
- Simpson Spence & Young - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Samtan Co., Ltd - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- Merrill Lynch Commodities Europe
- Carbofer General Trading SA - India
- Aboitiz Power Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- AsiaOL BioFuels Corp., Philippines
- Ind-Barath Power Infra Limited - India
- Coastal Gujarat Power Limited - India
- Australian Coal Association
- Coalindo Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Posco Energy - South Korea
- Parry Sugars Refinery, India
- Singapore Mercantile Exchange
- Kideco Jaya Agung - Indonesia
- London Commodity Brokers - England
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- Sical Logistics Limited - India
- Petron Corporation, Philippines
- Sakthi Sugars Limited - India
- Indo Tambangraya Megah - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Larsen & Toubro Limited - India
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sarangani Energy Corporation, Philippines
- Tamil Nadu electricity Board
- Toyota Tsusho Corporation, Japan
- Jaiprakash Power Ventures ltd
- PNOC Exploration Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- Karaikal Port Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CIMB Investment Bank - Malaysia
- Chettinad Cement Corporation Ltd - India
- Ministry of Finance - Indonesia
- Agrawal Coal Company - India
- Ceylon Electricity Board - Sri Lanka
- TeaM Sual Corporation - Philippines
- Power Finance Corporation Ltd., India
- Kapuas Tunggal Persada - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bukit Baiduri Energy - Indonesia
- Interocean Group of Companies - India
- Kepco SPC Power Corporation, Philippines
- MS Steel International - UAE
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