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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, 13 January 16
U.S. COAL PRODUCTION DECLINED BY 109 MMST IN 2015; COAL EXPORTS DECREASED 21% Y-O-Y
COALspot.com: U.S. coal production declined by 109 million short tons (MMst) (11%) in 2015, the largest decline ever recorded, says EIA.
The 2 ...
Wednesday, 13 January 16
SHIPPING MARKET INSIGHT - GEORGE ILIOPOULOS
Going through the second week of 2016 we could easily argue that at this point there are no visible signs of an imminent recovery in the Dry Bulk m ...
Wednesday, 13 January 16
IRON ORE IMPASSE - A FAILED CLAIM FOR CONVERSION - CLYDE & CO
KNOWLEDGE TO ELEVATE
In the recent case of the “Bao Yue”, the English High Court found that the bill of lading holder was liable t ...
Tuesday, 12 January 16
5700 GAR COAL FOR DELIVERY WITHIN Q1 FELL 0.91% WEEK OVER WEEK
COALspot.com: Average 5000 GAR coal index of Indonesian origin moved South direction week over week to averaging $39.96 per ton on last Friday, acc ...
Monday, 11 January 16
PORT OF NEWCASTLE SHIPPED 20% MORE COAL IN DECEMBER 2015; AVERAGE SELLING PRICE DECLINE 3.43%
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port has shipped $1.129 billio ...
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Showing 2611 to 2615 news of total 6871 |
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- Global Green Power PLC Corporation, Philippines
- Lanco Infratech Ltd - India
- Wood Mackenzie - Singapore
- Standard Chartered Bank - UAE
- Agrawal Coal Company - India
- Bangladesh Power Developement Board
- Cigading International Bulk Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- VISA Power Limited - India
- Attock Cement Pakistan Limited
- South Luzon Thermal Energy Corporation
- Meenaskhi Energy Private Limited - India
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- Global Business Power Corporation, Philippines
- Petron Corporation, Philippines
- Economic Council, Georgia
- Billiton Holdings Pty Ltd - Australia
- MS Steel International - UAE
- Binh Thuan Hamico - Vietnam
- Holcim Trading Pte Ltd - Singapore
- Simpson Spence & Young - Indonesia
- McConnell Dowell - Australia
- Oldendorff Carriers - Singapore
- Posco Energy - South Korea
- SMC Global Power, Philippines
- Orica Mining Services - Indonesia
- Edison Trading Spa - Italy
- CIMB Investment Bank - Malaysia
- Ministry of Finance - Indonesia
- Samtan Co., Ltd - South Korea
- Toyota Tsusho Corporation, Japan
- OPG Power Generation Pvt Ltd - India
- Videocon Industries ltd - India
- Semirara Mining and Power Corporation, Philippines
- Chamber of Mines of South Africa
- Straits Asia Resources Limited - Singapore
- Africa Commodities Group - South Africa
- Merrill Lynch Commodities Europe
- IHS Mccloskey Coal Group - USA
- Coal and Oil Company - UAE
- SN Aboitiz Power Inc, Philippines
- PTC India Limited - India
- Carbofer General Trading SA - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Salva Resources Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Sakthi Sugars Limited - India
- Indogreen Group - Indonesia
- Parry Sugars Refinery, India
- Grasim Industreis Ltd - India
- GMR Energy Limited - India
- New Zealand Coal & Carbon
- Jaiprakash Power Ventures ltd
- Bharathi Cement Corporation - India
- Tamil Nadu electricity Board
- Electricity Generating Authority of Thailand
- Tata Chemicals Ltd - India
- London Commodity Brokers - England
- Bhushan Steel Limited - India
- Semirara Mining Corp, Philippines
- Australian Coal Association
- Sojitz Corporation - Japan
- Sarangani Energy Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Mintek Dendrill Indonesia
- Iligan Light & Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Price Waterhouse Coopers - Russia
- Latin American Coal - Colombia
- Karbindo Abesyapradhi - Indoneisa
- Pendopo Energi Batubara - Indonesia
- Bhoruka Overseas - Indonesia
- Aboitiz Power Corporation - Philippines
- Larsen & Toubro Limited - India
- The University of Queensland
- Renaissance Capital - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Sree Jayajothi Cements Limited - India
- Eastern Coal Council - USA
- Krishnapatnam Port Company Ltd. - India
- Kohat Cement Company Ltd. - Pakistan
- White Energy Company Limited
- Cement Manufacturers Association - India
- Interocean Group of Companies - India
- Bukit Asam (Persero) Tbk - Indonesia
- PowerSource Philippines DevCo
- Kobexindo Tractors - Indoneisa
- Bukit Makmur.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- CNBM International Corporation - China
- Baramulti Group, Indonesia
- Indo Tambangraya Megah - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Therma Luzon, Inc, Philippines
- Jindal Steel & Power Ltd - India
- Bhatia International Limited - India
- GN Power Mariveles Coal Plant, Philippines
- LBH Netherlands Bv - Netherlands
- Orica Australia Pty. Ltd.
- Central Electricity Authority - India
- Romanian Commodities Exchange
- Banpu Public Company Limited - Thailand
- Indian Oil Corporation Limited
- Gujarat Mineral Development Corp Ltd - India
- Kapuas Tunggal Persada - Indonesia
- San Jose City I Power Corp, Philippines
- The Treasury - Australian Government
- Coalindo Energy - Indonesia
- ICICI Bank Limited - India
- Mjunction Services Limited - India
- Gujarat Sidhee Cement - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- Ministry of Transport, Egypt
- Thai Mozambique Logistica
- International Coal Ventures Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Central Java Power - Indonesia
- Ministry of Mines - Canada
- Barasentosa Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- European Bulk Services B.V. - Netherlands
- Altura Mining Limited, Indonesia
- Karaikal Port Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Georgia Ports Authority, United States
- Kideco Jaya Agung - Indonesia
- Malabar Cements Ltd - India
- Kaltim Prima Coal - Indonesia
- Heidelberg Cement - Germany
- India Bulls Power Limited - India
- Indian Energy Exchange, India
- Wilmar Investment Holdings
- Indika Energy - Indonesia
- Goldman Sachs - Singapore
- Energy Development Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Meralco Power Generation, Philippines
- Bulk Trading Sa - Switzerland
- Aditya Birla Group - India
- Australian Commodity Traders Exchange
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- Alfred C Toepfer International GmbH - Germany
- Makarim & Taira - Indonesia
- Sindya Power Generating Company Private Ltd
- Thiess Contractors Indonesia
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Trasteel International SA, Italy
- Marubeni Corporation - India
- IEA Clean Coal Centre - UK
- Indonesian Coal Mining Association
- Antam Resourcindo - Indonesia
- Port Waratah Coal Services - Australia
- Chettinad Cement Corporation Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Dalmia Cement Bharat India
- Kalimantan Lumbung Energi - Indonesia
- Independent Power Producers Association of India
- Globalindo Alam Lestari - Indonesia
- Kumho Petrochemical, South Korea
- Anglo American - United Kingdom
- PNOC Exploration Corporation - Philippines
- Intertek Mineral Services - Indonesia
- Planning Commission, India
- Mercuria Energy - Indonesia
- Singapore Mercantile Exchange
- Formosa Plastics Group - Taiwan
- Siam City Cement PLC, Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Essar Steel Hazira Ltd - India
- ASAPP Information Group - India
- Uttam Galva Steels Limited - India
- Madhucon Powers Ltd - India
- Rio Tinto Coal - Australia
- Vizag Seaport Private Limited - India
- Kartika Selabumi Mining - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Savvy Resources Ltd - HongKong
- Bahari Cakrawala Sebuku - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- AsiaOL BioFuels Corp., Philippines
- The State Trading Corporation of India Ltd
- Xindia Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Siam City Cement - Thailand
- Ceylon Electricity Board - Sri Lanka
- Mercator Lines Limited - India
- Medco Energi Mining Internasional
- TNB Fuel Sdn Bhd - Malaysia
- TeaM Sual Corporation - Philippines
- Borneo Indobara - Indonesia
- Vedanta Resources Plc - India
- PetroVietnam Power Coal Import and Supply Company
- Manunggal Multi Energi - Indonesia
- Minerals Council of Australia
- Bukit Baiduri Energy - Indonesia
- Riau Bara Harum - Indonesia
- Sical Logistics Limited - India
- Metalloyd Limited - United Kingdom
- Electricity Authority, New Zealand
- Commonwealth Bank - Australia
- Deloitte Consulting - India
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