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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, 13 November 15
WEAK CHINA POWER DEMAND DAMPENS COAL CONSUMPTION - FITCH
The weak growth in China's electricity consumption in 2015, together with increasing non-thermal power generation capacity are exerting more pr ...
Friday, 13 November 15
DRY BULK, IT IS HARD TO MAINTAIN AN OPTIMISTIC VIEW FOR THE NEXT COUPLE OF MONTHS - INTERMODAL
COALspot.com: The dry bulk owners looking for cover remained under pressure for size segments across the board. With Capes closing off the week as ...
Friday, 13 November 15
WEEKLY US COAL PRODUCTION DECLINES TO 16.5 MMST; SLIDE 14.9% Y-Y: EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 16.5 million shor ...
Thursday, 12 November 15
PORT OF NEWCASTLE'S COAL EXPORT VOLUME UP IN OCTOBER 2015
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port has shipped $1.254 billio ...
Wednesday, 11 November 15
Q3' 16 RICHARDS BAY COAL SWAP LOST 15.47% SINCE 6 AUGUST; 18.65% SINCE 6 MAY
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q1’ 2016 declined week over week and month over month.
The Q1’ 2016 &nb ...
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Showing 2716 to 2720 news of total 6871 |
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- Bayan Resources Tbk. - Indonesia
- Attock Cement Pakistan Limited
- Carbofer General Trading SA - India
- Sical Logistics Limited - India
- Medco Energi Mining Internasional
- Central Java Power - Indonesia
- Goldman Sachs - Singapore
- Iligan Light & Power Inc, Philippines
- Orica Australia Pty. Ltd.
- Economic Council, Georgia
- Malabar Cements Ltd - India
- IEA Clean Coal Centre - UK
- Commonwealth Bank - Australia
- Latin American Coal - Colombia
- PetroVietnam Power Coal Import and Supply Company
- Sindya Power Generating Company Private Ltd
- GMR Energy Limited - India
- Salva Resources Pvt Ltd - India
- Bangladesh Power Developement Board
- ICICI Bank Limited - India
- SMC Global Power, Philippines
- Chamber of Mines of South Africa
- Bulk Trading Sa - Switzerland
- VISA Power Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Uttam Galva Steels Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Rashtriya Ispat Nigam Limited - India
- Gujarat Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- European Bulk Services B.V. - Netherlands
- Barasentosa Lestari - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Indian Energy Exchange, India
- Vizag Seaport Private Limited - India
- Kartika Selabumi Mining - Indonesia
- Kaltim Prima Coal - Indonesia
- Coal and Oil Company - UAE
- GVK Power & Infra Limited - India
- IHS Mccloskey Coal Group - USA
- Toyota Tsusho Corporation, Japan
- Antam Resourcindo - Indonesia
- Bukit Baiduri Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Marubeni Corporation - India
- Timah Investasi Mineral - Indoneisa
- Thiess Contractors Indonesia
- Australian Commodity Traders Exchange
- Coalindo Energy - Indonesia
- Jaiprakash Power Ventures ltd
- Banpu Public Company Limited - Thailand
- Borneo Indobara - Indonesia
- Formosa Plastics Group - Taiwan
- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- Binh Thuan Hamico - Vietnam
- SN Aboitiz Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Siam City Cement - Thailand
- Tamil Nadu electricity Board
- Therma Luzon, Inc, Philippines
- Jindal Steel & Power Ltd - India
- Altura Mining Limited, Indonesia
- McConnell Dowell - Australia
- Bharathi Cement Corporation - India
- ASAPP Information Group - India
- Sarangani Energy Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Merrill Lynch Commodities Europe
- Karaikal Port Pvt Ltd - India
- Baramulti Group, Indonesia
- Sojitz Corporation - Japan
- Pipit Mutiara Jaya. PT, Indonesia
- London Commodity Brokers - England
- Cigading International Bulk Terminal - Indonesia
- Electricity Authority, New Zealand
- Aboitiz Power Corporation - Philippines
- Parliament of New Zealand
- Bukit Makmur.PT - Indonesia
- Eastern Coal Council - USA
- Leighton Contractors Pty Ltd - Australia
- Kapuas Tunggal Persada - Indonesia
- Simpson Spence & Young - Indonesia
- Directorate Of Revenue Intelligence - India
- Jorong Barutama Greston.PT - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Makarim & Taira - Indonesia
- Metalloyd Limited - United Kingdom
- Grasim Industreis Ltd - India
- Price Waterhouse Coopers - Russia
- Bhatia International Limited - India
- Kumho Petrochemical, South Korea
- Globalindo Alam Lestari - Indonesia
- Eastern Energy - Thailand
- Oldendorff Carriers - Singapore
- Mercator Lines Limited - India
- Siam City Cement PLC, Thailand
- Karbindo Abesyapradhi - Indoneisa
- Interocean Group of Companies - India
- Wood Mackenzie - Singapore
- Indogreen Group - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Global Green Power PLC Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Larsen & Toubro Limited - India
- Sree Jayajothi Cements Limited - India
- Port Waratah Coal Services - Australia
- Parry Sugars Refinery, India
- Gujarat Sidhee Cement - India
- Kideco Jaya Agung - Indonesia
- Energy Link Ltd, New Zealand
- Holcim Trading Pte Ltd - Singapore
- PTC India Limited - India
- TeaM Sual Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- The University of Queensland
- Kobexindo Tractors - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Standard Chartered Bank - UAE
- Riau Bara Harum - Indonesia
- Wilmar Investment Holdings
- Essar Steel Hazira Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Coastal Gujarat Power Limited - India
- Star Paper Mills Limited - India
- Sinarmas Energy and Mining - Indonesia
- Maheswari Brothers Coal Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Central Electricity Authority - India
- South Luzon Thermal Energy Corporation
- CNBM International Corporation - China
- Bank of Tokyo Mitsubishi UFJ Ltd
- Deloitte Consulting - India
- Meenaskhi Energy Private Limited - India
- Africa Commodities Group - South Africa
- PowerSource Philippines DevCo
- Neyveli Lignite Corporation Ltd, - India
- New Zealand Coal & Carbon
- Petron Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Transport, Egypt
- Vedanta Resources Plc - India
- Posco Energy - South Korea
- OPG Power Generation Pvt Ltd - India
- Dalmia Cement Bharat India
- GN Power Mariveles Coal Plant, Philippines
- Minerals Council of Australia
- SMG Consultants - Indonesia
- Energy Development Corp, Philippines
- Cement Manufacturers Association - India
- Independent Power Producers Association of India
- Ind-Barath Power Infra Limited - India
- Indian Oil Corporation Limited
- Aditya Birla Group - India
- Gujarat Mineral Development Corp Ltd - India
- Global Business Power Corporation, Philippines
- Thai Mozambique Logistica
- Ambuja Cements Ltd - India
- Australian Coal Association
- Heidelberg Cement - Germany
- Miang Besar Coal Terminal - Indonesia
- The Treasury - Australian Government
- Indo Tambangraya Megah - Indonesia
- San Jose City I Power Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Planning Commission, India
- Semirara Mining and Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Meralco Power Generation, Philippines
- White Energy Company Limited
- Videocon Industries ltd - India
- Sakthi Sugars Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Romanian Commodities Exchange
- International Coal Ventures Pvt Ltd - India
- Trasteel International SA, Italy
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Georgia Ports Authority, United States
- Pendopo Energi Batubara - Indonesia
- Renaissance Capital - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Finance - Indonesia
- Madhucon Powers Ltd - India
- Mercuria Energy - Indonesia
- India Bulls Power Limited - India
- Agrawal Coal Company - India
- GAC Shipping (India) Pvt Ltd
- Indika Energy - Indonesia
- Rio Tinto Coal - Australia
- The State Trading Corporation of India Ltd
- Edison Trading Spa - Italy
- Bhushan Steel Limited - India
- MS Steel International - UAE
- Xindia Steels Limited - India
- Indonesian Coal Mining Association
- Singapore Mercantile Exchange
- Kohat Cement Company Ltd. - Pakistan
- Power Finance Corporation Ltd., India
- Bahari Cakrawala Sebuku - Indonesia
- Krishnapatnam Port Company Ltd. - India
- AsiaOL BioFuels Corp., Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Lanco Infratech Ltd - India
- Ministry of Mines - Canada
- Global Coal Blending Company Limited - Australia
- Semirara Mining Corp, Philippines
- Mjunction Services Limited - India
- Bhoruka Overseas - Indonesia
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