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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, 24 February 16
HOW IS THE FUEL MIX FOR U.S. ELECTRICITY GENERATION CHANGING? - EIA
In recent years, there have been changes in the mix of fuels used to generate electricity in the United States. Natural gas and renewable energy so ...
Wednesday, 24 February 16
PRIVATE EQUITY FUNDS LOOKING TO EXIT SHIPPING, MOST NOTABLY DRY BULK, AS OVERORDERING HAS RESULTED IN EXCESS TONNAGE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The injection of more than $13 billion in shipping from various private equity funds over the past few years has resulted in what many feared would ...
Wednesday, 24 February 16
THIRTEEN - NOT ALWAYS AN UNLUCKY NUMBER? - CLARKSONS
Back in early 1999 the price of a 5 year old Panamax bulkcarrier dipped to $13.5m, and ever since analysts have hailed purchase decisions made at t ...
Monday, 22 February 16
4200 GAR COAL INDEX SETTLES AT $27.02, DOWN 0.07% FROM LAST WEEK
COALspot.com: Average 5000 GAR coal index of Indonesian origin decline 0.17 percent week over week to averaging $38.89 per ton on this past Friday, ...
Monday, 22 February 16
FREIGHT MARKETS PICKED UP SLIGHTLY THIS PAST WEEK
COALspot.com: The freight markets picked up slightly this past week.
The Baltic Dry Index (BDI) of dry-bulk shipping freights, a measure of gl ...
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Showing 2551 to 2555 news of total 6871 |
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- Bank of Tokyo Mitsubishi UFJ Ltd
- Posco Energy - South Korea
- Thiess Contractors Indonesia
- Grasim Industreis Ltd - India
- ICICI Bank Limited - India
- GVK Power & Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement - Thailand
- Therma Luzon, Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Kalimantan Lumbung Energi - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Toyota Tsusho Corporation, Japan
- Standard Chartered Bank - UAE
- Krishnapatnam Port Company Ltd. - India
- The State Trading Corporation of India Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Finance - Indonesia
- Metalloyd Limited - United Kingdom
- Kartika Selabumi Mining - Indonesia
- CIMB Investment Bank - Malaysia
- Bhushan Steel Limited - India
- Sojitz Corporation - Japan
- The Treasury - Australian Government
- Bukit Asam (Persero) Tbk - Indonesia
- Global Coal Blending Company Limited - Australia
- Aboitiz Power Corporation - Philippines
- Goldman Sachs - Singapore
- Rashtriya Ispat Nigam Limited - India
- Alfred C Toepfer International GmbH - Germany
- Cement Manufacturers Association - India
- Sical Logistics Limited - India
- Vedanta Resources Plc - India
- Price Waterhouse Coopers - Russia
- Ind-Barath Power Infra Limited - India
- Merrill Lynch Commodities Europe
- Semirara Mining and Power Corporation, Philippines
- Independent Power Producers Association of India
- European Bulk Services B.V. - Netherlands
- Mercuria Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Indogreen Group - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- White Energy Company Limited
- Eastern Coal Council - USA
- Karbindo Abesyapradhi - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Energy Development Corp, Philippines
- Indonesian Coal Mining Association
- Offshore Bulk Terminal Pte Ltd, Singapore
- Miang Besar Coal Terminal - Indonesia
- IEA Clean Coal Centre - UK
- SMC Global Power, Philippines
- Commonwealth Bank - Australia
- Chamber of Mines of South Africa
- Mercator Lines Limited - India
- Holcim Trading Pte Ltd - Singapore
- Larsen & Toubro Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- VISA Power Limited - India
- Coal and Oil Company - UAE
- LBH Netherlands Bv - Netherlands
- SN Aboitiz Power Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Economic Council, Georgia
- IHS Mccloskey Coal Group - USA
- Heidelberg Cement - Germany
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- ASAPP Information Group - India
- Binh Thuan Hamico - Vietnam
- Jaiprakash Power Ventures ltd
- Marubeni Corporation - India
- Sarangani Energy Corporation, Philippines
- Lanco Infratech Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhoruka Overseas - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Anglo American - United Kingdom
- Aditya Birla Group - India
- Bharathi Cement Corporation - India
- Meralco Power Generation, Philippines
- Mjunction Services Limited - India
- Ambuja Cements Ltd - India
- Jindal Steel & Power Ltd - India
- Bangladesh Power Developement Board
- Siam City Cement PLC, Thailand
- Dalmia Cement Bharat India
- Sindya Power Generating Company Private Ltd
- Ministry of Mines - Canada
- South Luzon Thermal Energy Corporation
- Edison Trading Spa - Italy
- Electricity Generating Authority of Thailand
- London Commodity Brokers - England
- Sinarmas Energy and Mining - Indonesia
- Essar Steel Hazira Ltd - India
- Wilmar Investment Holdings
- Oldendorff Carriers - Singapore
- Makarim & Taira - Indonesia
- Formosa Plastics Group - Taiwan
- AsiaOL BioFuels Corp., Philippines
- Borneo Indobara - Indonesia
- Directorate Of Revenue Intelligence - India
- Sakthi Sugars Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Altura Mining Limited, Indonesia
- Antam Resourcindo - Indonesia
- Latin American Coal - Colombia
- GN Power Mariveles Coal Plant, Philippines
- Power Finance Corporation Ltd., India
- Kepco SPC Power Corporation, Philippines
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- Minerals Council of Australia
- Australian Coal Association
- International Coal Ventures Pvt Ltd - India
- Central Java Power - Indonesia
- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Africa Commodities Group - South Africa
- Ministry of Transport, Egypt
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vizag Seaport Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Bukit Baiduri Energy - Indonesia
- Indika Energy - Indonesia
- Eastern Energy - Thailand
- Manunggal Multi Energi - Indonesia
- GMR Energy Limited - India
- Planning Commission, India
- Interocean Group of Companies - India
- CNBM International Corporation - China
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Indian Oil Corporation Limited
- Simpson Spence & Young - Indonesia
- Indo Tambangraya Megah - Indonesia
- Iligan Light & Power Inc, Philippines
- Electricity Authority, New Zealand
- Gujarat Mineral Development Corp Ltd - India
- Riau Bara Harum - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Karaikal Port Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Kobexindo Tractors - Indoneisa
- Australian Commodity Traders Exchange
- The University of Queensland
- Sree Jayajothi Cements Limited - India
- Attock Cement Pakistan Limited
- Medco Energi Mining Internasional
- Kapuas Tunggal Persada - Indonesia
- Straits Asia Resources Limited - Singapore
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- Wood Mackenzie - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
- Semirara Mining Corp, Philippines
- Romanian Commodities Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Parry Sugars Refinery, India
- PowerSource Philippines DevCo
- TeaM Sual Corporation - Philippines
- New Zealand Coal & Carbon
- Bulk Trading Sa - Switzerland
- Tamil Nadu electricity Board
- PetroVietnam Power Coal Import and Supply Company
- Cigading International Bulk Terminal - Indonesia
- Savvy Resources Ltd - HongKong
- San Jose City I Power Corp, Philippines
- Coalindo Energy - Indonesia
- Malabar Cements Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Port Waratah Coal Services - Australia
- SMG Consultants - Indonesia
- Central Electricity Authority - India
- Bukit Makmur.PT - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Renaissance Capital - South Africa
- Maheswari Brothers Coal Limited - India
- Gujarat Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Georgia Ports Authority, United States
- Indian Energy Exchange, India
- Parliament of New Zealand
- Rio Tinto Coal - Australia
- Timah Investasi Mineral - Indoneisa
- Petron Corporation, Philippines
- Orica Mining Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- India Bulls Power Limited - India
- Tata Chemicals Ltd - India
- Meenaskhi Energy Private Limited - India
- Pendopo Energi Batubara - Indonesia
- Kideco Jaya Agung - Indonesia
- Bhatia International Limited - India
- Billiton Holdings Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- Uttam Galva Steels Limited - India
- Xindia Steels Limited - India
- Singapore Mercantile Exchange
- Videocon Industries ltd - India
- Thai Mozambique Logistica
- Chettinad Cement Corporation Ltd - India
- Orica Australia Pty. Ltd.
- PNOC Exploration Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- Mintek Dendrill Indonesia
- MS Steel International - UAE
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