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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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Tuesday, 17 November 15
FOB NEWCASTLE COAL SWAPS FALL: Q1'16 SLID 11.45% M-M
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2016 delivery slid $4.75 per ton (11.45%) month over month to US$ 36.75 per ton. The swap ...
Monday, 16 November 15
KOMIPO INVITES BIDS FOR 1.295 MILLION TONS OF BITUMINOUS COAL FOR Q1 - Q2'16
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender for 1,295,000 Metric Tons (MT) of minimum 4,600 kc ...
Monday, 16 November 15
SOUTH CHINA COAL SWAPS DECLINE CONTINUES THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery declined US$ 6.05 (12.59%) per ton month over month.
A commodity swa ...
Monday, 16 November 15
CLARKSEA INDEX COMPETITION: IS IT ALL IN THE TIMING? - CLARKSONS
Readers of the Shipping Intelligence Weekly are invited each year to predict the value of the ClarkSea Index one year ahead in the first week of No ...
Monday, 16 November 15
DRY BULK MARKET: Q1' 2016 SHAPING UP TO BE A ' DISASTROUS' ONE OF PROJECTED LOWER IRON ORE IMPORTS FROM CHINA
Over the course of the past year or so, it’s been the drop of coal imports from China, which has had a detrimental effect on the course of dr ...
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Showing 2711 to 2715 news of total 6871 |
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- Global Coal Blending Company Limited - Australia
- Eastern Coal Council - USA
- IEA Clean Coal Centre - UK
- Singapore Mercantile Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- International Coal Ventures Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Central Electricity Authority - India
- Trasteel International SA, Italy
- Kaltim Prima Coal - Indonesia
- Ministry of Transport, Egypt
- Goldman Sachs - Singapore
- Miang Besar Coal Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Electricity Generating Authority of Thailand
- Malabar Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- Bukit Makmur.PT - Indonesia
- Carbofer General Trading SA - India
- TNB Fuel Sdn Bhd - Malaysia
- Offshore Bulk Terminal Pte Ltd, Singapore
- San Jose City I Power Corp, Philippines
- Lanco Infratech Ltd - India
- Ministry of Mines - Canada
- The University of Queensland
- Mercuria Energy - Indonesia
- SMC Global Power, Philippines
- Minerals Council of Australia
- Bukit Baiduri Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Maheswari Brothers Coal Limited - India
- Sindya Power Generating Company Private Ltd
- New Zealand Coal & Carbon
- Metalloyd Limited - United Kingdom
- Indika Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Oldendorff Carriers - Singapore
- GAC Shipping (India) Pvt Ltd
- Cement Manufacturers Association - India
- Bhushan Steel Limited - India
- Renaissance Capital - South Africa
- Electricity Authority, New Zealand
- Anglo American - United Kingdom
- Aditya Birla Group - India
- Mintek Dendrill Indonesia
- Baramulti Group, Indonesia
- Commonwealth Bank - Australia
- SMG Consultants - Indonesia
- Manunggal Multi Energi - Indonesia
- Meenaskhi Energy Private Limited - India
- Planning Commission, India
- Vizag Seaport Private Limited - India
- Sree Jayajothi Cements Limited - India
- Georgia Ports Authority, United States
- Global Green Power PLC Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Indogreen Group - Indonesia
- VISA Power Limited - India
- Sojitz Corporation - Japan
- MS Steel International - UAE
- OPG Power Generation Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Altura Mining Limited, Indonesia
- GVK Power & Infra Limited - India
- Kapuas Tunggal Persada - Indonesia
- Toyota Tsusho Corporation, Japan
- Gujarat Electricity Regulatory Commission - India
- Rio Tinto Coal - Australia
- Sarangani Energy Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Price Waterhouse Coopers - Russia
- Directorate General of MIneral and Coal - Indonesia
- Indian Oil Corporation Limited
- Antam Resourcindo - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Eastern Energy - Thailand
- Chettinad Cement Corporation Ltd - India
- Marubeni Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Savvy Resources Ltd - HongKong
- Uttam Galva Steels Limited - India
- PNOC Exploration Corporation - Philippines
- Rashtriya Ispat Nigam Limited - India
- Interocean Group of Companies - India
- Therma Luzon, Inc, Philippines
- Ambuja Cements Ltd - India
- ICICI Bank Limited - India
- Power Finance Corporation Ltd., India
- Asmin Koalindo Tuhup - Indonesia
- Dalmia Cement Bharat India
- Attock Cement Pakistan Limited
- ASAPP Information Group - India
- Timah Investasi Mineral - Indoneisa
- Heidelberg Cement - Germany
- Directorate Of Revenue Intelligence - India
- Petron Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Medco Energi Mining Internasional
- Coal and Oil Company - UAE
- Alfred C Toepfer International GmbH - Germany
- GN Power Mariveles Coal Plant, Philippines
- Pendopo Energi Batubara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Orica Mining Services - Indonesia
- Wood Mackenzie - Singapore
- Intertek Mineral Services - Indonesia
- Agrawal Coal Company - India
- Karbindo Abesyapradhi - Indoneisa
- Merrill Lynch Commodities Europe
- Thai Mozambique Logistica
- Kartika Selabumi Mining - Indonesia
- Makarim & Taira - Indonesia
- Bayan Resources Tbk. - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Deloitte Consulting - India
- Indian Energy Exchange, India
- Star Paper Mills Limited - India
- LBH Netherlands Bv - Netherlands
- Parliament of New Zealand
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Binh Thuan Hamico - Vietnam
- Semirara Mining and Power Corporation, Philippines
- Central Java Power - Indonesia
- London Commodity Brokers - England
- Riau Bara Harum - Indonesia
- Kepco SPC Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Ministry of Finance - Indonesia
- Energy Development Corp, Philippines
- Edison Trading Spa - Italy
- Samtan Co., Ltd - South Korea
- Africa Commodities Group - South Africa
- Formosa Plastics Group - Taiwan
- White Energy Company Limited
- Gujarat Mineral Development Corp Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Bhoruka Overseas - Indonesia
- Sakthi Sugars Limited - India
- Independent Power Producers Association of India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Thiess Contractors Indonesia
- Meralco Power Generation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Bhatia International Limited - India
- Mercator Lines Limited - India
- Standard Chartered Bank - UAE
- SN Aboitiz Power Inc, Philippines
- Bulk Trading Sa - Switzerland
- Straits Asia Resources Limited - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- India Bulls Power Limited - India
- Videocon Industries ltd - India
- Indo Tambangraya Megah - Indonesia
- Borneo Indobara - Indonesia
- Coalindo Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Parry Sugars Refinery, India
- Kumho Petrochemical, South Korea
- Vedanta Resources Plc - India
- Latin American Coal - Colombia
- Mjunction Services Limited - India
- Jindal Steel & Power Ltd - India
- Grasim Industreis Ltd - India
- Chamber of Mines of South Africa
- Posco Energy - South Korea
- Siam City Cement - Thailand
- Global Business Power Corporation, Philippines
- CNBM International Corporation - China
- Siam City Cement PLC, Thailand
- Economic Council, Georgia
- Bangladesh Power Developement Board
- Maharashtra Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Australian Commodity Traders Exchange
- GMR Energy Limited - India
- Ceylon Electricity Board - Sri Lanka
- Wilmar Investment Holdings
- Madhucon Powers Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Sical Logistics Limited - India
- Aboitiz Power Corporation - Philippines
- Port Waratah Coal Services - Australia
- Globalindo Alam Lestari - Indonesia
- McConnell Dowell - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Orica Australia Pty. Ltd.
- Romanian Commodities Exchange
- Coastal Gujarat Power Limited - India
- South Luzon Thermal Energy Corporation
- Kohat Cement Company Ltd. - Pakistan
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Ind-Barath Power Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- PetroVietnam Power Coal Import and Supply Company
- Banpu Public Company Limited - Thailand
- The State Trading Corporation of India Ltd
- PTC India Limited - India
- European Bulk Services B.V. - Netherlands
- Indonesian Coal Mining Association
- IHS Mccloskey Coal Group - USA
- Simpson Spence & Young - Indonesia
- Larsen & Toubro Limited - India
- Kideco Jaya Agung - Indonesia
- Energy Link Ltd, New Zealand
- Tata Chemicals Ltd - India
- PowerSource Philippines DevCo
- CIMB Investment Bank - Malaysia
- Tamil Nadu electricity Board
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