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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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Friday, 18 March 16
OUTLOOK ON GLOBAL SHIPPING SECTOR TURNS NEGATIVE AS SUPPLY-DEMAND GAP WIDENS AND EBITDA DECLINES - MOODY'S
Moody’s Investors Service (Moody’s) has changed its outlook on the global shipping sector to negative as it expects supply growth to ou ...
Friday, 18 March 16
DRY BULK MARKET HAS LITTLE TO LOOK FORWARD TO FROM CHINA AT THE MOMENT - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market’s rebound is long overdue, but when it comes, it won’t be because of China’s strong demand for commodities, o ...
Friday, 18 March 16
COAL PRODUCTION IN THE UNITED STATES SLIGHTLY DECREASED THIS WEEK - EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 12.5 million shor ...
Thursday, 17 March 16
THE PANAMAX MARKET SEEMS TO BE A BIT TOPPISH THIS WEEK - FEARNLEYS
Cape
There are challenging days with rates or less unchanged from last week; West Australia to China still below US$ 3 pmt, and Tuarao to China i ...
Wednesday, 16 March 16
OIL SUPPLY OUTPACES DEMAND ON ANY GIVEN DAY, AND BILLIONS OF BARRELS OF OIL ARE BEING STORED RATHER THAN CONSUMED - CHRISTOPHER
Oil producers have turned to the concept of limiting their output to January levels as a certain form of action to boost prices that have fallen mo ...
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Showing 2516 to 2520 news of total 6871 |
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- Maheswari Brothers Coal Limited - India
- Straits Asia Resources Limited - Singapore
- Bulk Trading Sa - Switzerland
- Pendopo Energi Batubara - Indonesia
- Therma Luzon, Inc, Philippines
- Ambuja Cements Ltd - India
- Kumho Petrochemical, South Korea
- Gujarat Electricity Regulatory Commission - India
- Barasentosa Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Indika Energy - Indonesia
- MS Steel International - UAE
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Uttam Galva Steels Limited - India
- PTC India Limited - India
- Bhushan Steel Limited - India
- Tata Chemicals Ltd - India
- Formosa Plastics Group - Taiwan
- Australian Coal Association
- White Energy Company Limited
- GAC Shipping (India) Pvt Ltd
- Neyveli Lignite Corporation Ltd, - India
- Eastern Coal Council - USA
- Kobexindo Tractors - Indoneisa
- Wilmar Investment Holdings
- Australian Commodity Traders Exchange
- Iligan Light & Power Inc, Philippines
- Antam Resourcindo - Indonesia
- Parry Sugars Refinery, India
- Samtan Co., Ltd - South Korea
- Aditya Birla Group - India
- Economic Council, Georgia
- Altura Mining Limited, Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Global Green Power PLC Corporation, Philippines
- Sical Logistics Limited - India
- Kapuas Tunggal Persada - Indonesia
- Aboitiz Power Corporation - Philippines
- Intertek Mineral Services - Indonesia
- Karaikal Port Pvt Ltd - India
- Central Java Power - Indonesia
- Simpson Spence & Young - Indonesia
- Vizag Seaport Private Limited - India
- Sojitz Corporation - Japan
- Sindya Power Generating Company Private Ltd
- Planning Commission, India
- Anglo American - United Kingdom
- Ministry of Mines - Canada
- Borneo Indobara - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GMR Energy Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Holcim Trading Pte Ltd - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Siam City Cement PLC, Thailand
- Semirara Mining and Power Corporation, Philippines
- Independent Power Producers Association of India
- Binh Thuan Hamico - Vietnam
- Metalloyd Limited - United Kingdom
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- GVK Power & Infra Limited - India
- Sarangani Energy Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Singapore Mercantile Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Global Business Power Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- Trasteel International SA, Italy
- Bukit Asam (Persero) Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMC Global Power, Philippines
- Bhatia International Limited - India
- Jaiprakash Power Ventures ltd
- PetroVietnam Power Coal Import and Supply Company
- Indian Energy Exchange, India
- Africa Commodities Group - South Africa
- Coastal Gujarat Power Limited - India
- Heidelberg Cement - Germany
- Energy Development Corp, Philippines
- Lanco Infratech Ltd - India
- Baramulti Group, Indonesia
- VISA Power Limited - India
- The Treasury - Australian Government
- Agrawal Coal Company - India
- Chettinad Cement Corporation Ltd - India
- Goldman Sachs - Singapore
- European Bulk Services B.V. - Netherlands
- Bhoruka Overseas - Indonesia
- Grasim Industreis Ltd - India
- Banpu Public Company Limited - Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- International Coal Ventures Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Bank of Tokyo Mitsubishi UFJ Ltd
- Malabar Cements Ltd - India
- Oldendorff Carriers - Singapore
- AsiaOL BioFuels Corp., Philippines
- Bangladesh Power Developement Board
- Standard Chartered Bank - UAE
- The University of Queensland
- Makarim & Taira - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Miang Besar Coal Terminal - Indonesia
- Chamber of Mines of South Africa
- Petron Corporation, Philippines
- Merrill Lynch Commodities Europe
- Medco Energi Mining Internasional
- PNOC Exploration Corporation - Philippines
- Indian Oil Corporation Limited
- Karbindo Abesyapradhi - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Gujarat Sidhee Cement - India
- Ministry of Finance - Indonesia
- Renaissance Capital - South Africa
- Leighton Contractors Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Carbofer General Trading SA - India
- Vedanta Resources Plc - India
- Latin American Coal - Colombia
- Larsen & Toubro Limited - India
- Central Electricity Authority - India
- Directorate Of Revenue Intelligence - India
- Alfred C Toepfer International GmbH - Germany
- SMG Consultants - Indonesia
- Siam City Cement - Thailand
- Ministry of Transport, Egypt
- Interocean Group of Companies - India
- Wood Mackenzie - Singapore
- Parliament of New Zealand
- Videocon Industries ltd - India
- CNBM International Corporation - China
- Kaltim Prima Coal - Indonesia
- Coalindo Energy - Indonesia
- Mercator Lines Limited - India
- Timah Investasi Mineral - Indoneisa
- Kepco SPC Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- The State Trading Corporation of India Ltd
- LBH Netherlands Bv - Netherlands
- Attock Cement Pakistan Limited
- Ind-Barath Power Infra Limited - India
- OPG Power Generation Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Electricity Generating Authority of Thailand
- Mercuria Energy - Indonesia
- Star Paper Mills Limited - India
- McConnell Dowell - Australia
- Toyota Tsusho Corporation, Japan
- IEA Clean Coal Centre - UK
- Salva Resources Pvt Ltd - India
- India Bulls Power Limited - India
- Cement Manufacturers Association - India
- Orica Mining Services - Indonesia
- Energy Link Ltd, New Zealand
- Sree Jayajothi Cements Limited - India
- Bayan Resources Tbk. - Indonesia
- San Jose City I Power Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Electricity Authority, New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Coal and Oil Company - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Meenaskhi Energy Private Limited - India
- Mjunction Services Limited - India
- Sinarmas Energy and Mining - Indonesia
- ASAPP Information Group - India
- Thai Mozambique Logistica
- Maharashtra Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
- Vijayanagar Sugar Pvt Ltd - India
- Marubeni Corporation - India
- London Commodity Brokers - England
- Bukit Baiduri Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Georgia Ports Authority, United States
- Bharathi Cement Corporation - India
- Posco Energy - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Madhucon Powers Ltd - India
- Kideco Jaya Agung - Indonesia
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- IHS Mccloskey Coal Group - USA
- Tamil Nadu electricity Board
- New Zealand Coal & Carbon
- ICICI Bank Limited - India
- Indonesian Coal Mining Association
- Minerals Council of Australia
- Bukit Makmur.PT - Indonesia
- Dalmia Cement Bharat India
- Commonwealth Bank - Australia
- Riau Bara Harum - Indonesia
- Orica Australia Pty. Ltd.
- Meralco Power Generation, Philippines
- Rio Tinto Coal - Australia
- Kartika Selabumi Mining - Indonesia
- Edison Trading Spa - Italy
- Deloitte Consulting - India
- South Luzon Thermal Energy Corporation
- Romanian Commodities Exchange
- Jorong Barutama Greston.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Global Coal Blending Company Limited - Australia
- Essar Steel Hazira Ltd - India
- Power Finance Corporation Ltd., India
- Xindia Steels Limited - India
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