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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, 28 October 15
Q2'16 FOB RICHARDS BAY COAL SWAP SEES FURTHER DECLINES
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q4' 2015 gained week over week and declined month over month.
The Q4 swap was d ...
Wednesday, 28 October 15
BDI INCREASE TOOK PLACE SOLELY ON THE BACK OF CAPESIZE PERFORMANCE, BUT........ - INTERMODAL
COALspot.com: The Dry Bulk market closed off the week noting a small improvement which nonetheless failed to lift sentiment, not only because ...
Tuesday, 27 October 15
Q1'16 API 5 FOB NEWCASTLE COAL SWAP DECLINE 6 PER CENT M-M
COALspot.com: API 5 FOB Newcastle Coal swap for Q4’ 2015 delivery decreased $2 per ton (4.66%) month over month to US$ 40.93 per ton. The swa ...
Monday, 26 October 15
PORT OF NEWCASTLE SHIPPED 10.5 PER CENT LESS COAL IN SEPTEMBER, COMPARED TO AUGUST LOADING
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $1.161 billi ...
Monday, 26 October 15
CFR SOUTH CHINA COAL SWAPS CLOSE DOWN 4.3% AS DEMAND CONCERNS WEIGH
COALspot.com: API 8 CFR South China Coal swap for 4Q’ 2015 delivery down just US$ 1.48 (3.02 %) per ton month over month.
A commodity sw ...
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Showing 2746 to 2750 news of total 6871 |
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- Kartika Selabumi Mining - Indonesia
- Sical Logistics Limited - India
- Electricity Authority, New Zealand
- Carbofer General Trading SA - India
- Global Green Power PLC Corporation, Philippines
- Uttam Galva Steels Limited - India
- Trasteel International SA, Italy
- Africa Commodities Group - South Africa
- Mercator Lines Limited - India
- Kepco SPC Power Corporation, Philippines
- Mintek Dendrill Indonesia
- The State Trading Corporation of India Ltd
- Anglo American - United Kingdom
- San Jose City I Power Corp, Philippines
- Attock Cement Pakistan Limited
- Indika Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Wilmar Investment Holdings
- Orica Mining Services - Indonesia
- Renaissance Capital - South Africa
- TeaM Sual Corporation - Philippines
- Samtan Co., Ltd - South Korea
- GMR Energy Limited - India
- PNOC Exploration Corporation - Philippines
- Australian Coal Association
- Semirara Mining Corp, Philippines
- Ministry of Finance - Indonesia
- Mjunction Services Limited - India
- Kobexindo Tractors - Indoneisa
- Gujarat Sidhee Cement - India
- SN Aboitiz Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Kaltim Prima Coal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- PowerSource Philippines DevCo
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhoruka Overseas - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Sree Jayajothi Cements Limited - India
- Bhushan Steel Limited - India
- Alfred C Toepfer International GmbH - Germany
- Directorate Of Revenue Intelligence - India
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement - Thailand
- Coalindo Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Heidelberg Cement - Germany
- Bangladesh Power Developement Board
- Meralco Power Generation, Philippines
- Toyota Tsusho Corporation, Japan
- Banpu Public Company Limited - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Xindia Steels Limited - India
- Aboitiz Power Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Central Electricity Authority - India
- Global Coal Blending Company Limited - Australia
- Straits Asia Resources Limited - Singapore
- Economic Council, Georgia
- The Treasury - Australian Government
- Semirara Mining and Power Corporation, Philippines
- Coal and Oil Company - UAE
- Kideco Jaya Agung - Indonesia
- Vedanta Resources Plc - India
- ICICI Bank Limited - India
- Global Business Power Corporation, Philippines
- Indian Energy Exchange, India
- South Luzon Thermal Energy Corporation
- Eastern Energy - Thailand
- Dalmia Cement Bharat India
- Tamil Nadu electricity Board
- Planning Commission, India
- Siam City Cement PLC, Thailand
- New Zealand Coal & Carbon
- Sarangani Energy Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Aditya Birla Group - India
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- Thai Mozambique Logistica
- Leighton Contractors Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Interocean Group of Companies - India
- Commonwealth Bank - Australia
- Altura Mining Limited, Indonesia
- Singapore Mercantile Exchange
- Tata Chemicals Ltd - India
- Indonesian Coal Mining Association
- Power Finance Corporation Ltd., India
- Energy Link Ltd, New Zealand
- Petron Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Cement Manufacturers Association - India
- VISA Power Limited - India
- Metalloyd Limited - United Kingdom
- Gujarat Electricity Regulatory Commission - India
- Binh Thuan Hamico - Vietnam
- Sojitz Corporation - Japan
- Videocon Industries ltd - India
- Barasentosa Lestari - Indonesia
- Orica Australia Pty. Ltd.
- ASAPP Information Group - India
- Globalindo Alam Lestari - Indonesia
- Parliament of New Zealand
- Marubeni Corporation - India
- Medco Energi Mining Internasional
- Energy Development Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Electricity Generating Authority of Thailand
- Ind-Barath Power Infra Limited - India
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Timah Investasi Mineral - Indoneisa
- Bukit Makmur.PT - Indonesia
- Grasim Industreis Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Essar Steel Hazira Ltd - India
- Jindal Steel & Power Ltd - India
- Bulk Trading Sa - Switzerland
- Deloitte Consulting - India
- White Energy Company Limited
- India Bulls Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Coastal Gujarat Power Limited - India
- Antam Resourcindo - Indonesia
- Bukit Baiduri Energy - Indonesia
- Mercuria Energy - Indonesia
- Riau Bara Harum - Indonesia
- Wood Mackenzie - Singapore
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Chamber of Mines of South Africa
- Formosa Plastics Group - Taiwan
- Central Java Power - Indonesia
- IEA Clean Coal Centre - UK
- Billiton Holdings Pty Ltd - Australia
- Edison Trading Spa - Italy
- Minerals Council of Australia
- Bayan Resources Tbk. - Indonesia
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Madhucon Powers Ltd - India
- IHS Mccloskey Coal Group - USA
- Posco Energy - South Korea
- Iligan Light & Power Inc, Philippines
- London Commodity Brokers - England
- Latin American Coal - Colombia
- CIMB Investment Bank - Malaysia
- LBH Netherlands Bv - Netherlands
- Bharathi Cement Corporation - India
- Krishnapatnam Port Company Ltd. - India
- Malabar Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- The University of Queensland
- PetroVietnam Power Coal Import and Supply Company
- AsiaOL BioFuels Corp., Philippines
- Baramulti Group, Indonesia
- PTC India Limited - India
- Sinarmas Energy and Mining - Indonesia
- Larsen & Toubro Limited - India
- Ministry of Transport, Egypt
- Rio Tinto Coal - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Vizag Seaport Private Limited - India
- CNBM International Corporation - China
- Indogreen Group - Indonesia
- Borneo Indobara - Indonesia
- Port Waratah Coal Services - Australia
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- Price Waterhouse Coopers - Russia
- Savvy Resources Ltd - HongKong
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kapuas Tunggal Persada - Indonesia
- Oldendorff Carriers - Singapore
- Ambuja Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Bhatia International Limited - India
- GVK Power & Infra Limited - India
- Ministry of Mines - Canada
- Parry Sugars Refinery, India
- Ceylon Electricity Board - Sri Lanka
- Independent Power Producers Association of India
- European Bulk Services B.V. - Netherlands
- Karaikal Port Pvt Ltd - India
- McConnell Dowell - Australia
- Chettinad Cement Corporation Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Sakthi Sugars Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Indian Oil Corporation Limited
- Indo Tambangraya Megah - Indonesia
- Thiess Contractors Indonesia
- Goldman Sachs - Singapore
- SMC Global Power, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Karbindo Abesyapradhi - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Merrill Lynch Commodities Europe
- MS Steel International - UAE
- Therma Luzon, Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Mineral Development Corp Ltd - India
- Meenaskhi Energy Private Limited - India
- Georgia Ports Authority, United States
- Kalimantan Lumbung Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- Makarim & Taira - Indonesia
- Agrawal Coal Company - India
- Romanian Commodities Exchange
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