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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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Sunday, 20 September 15
BALTIC CAPE INDEX ROSE 66.52 PER CENT AND STAND NOW AT 1995 POINTS
COALspot.com: The BDI (Baltic Dry Index) rose 17.35 per cent week over week to 960 points on Friday mainly driven by the Capesize segment. The Cape ...
Friday, 18 September 15
SHIPPING AND THE FED RATE DECISION: FINANCING COSTS COULD RISE EVEN HIGHER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Regardless of the FED’s decision to raise rates, shipping stands to be influenced by the decision. Shipbroker Allied Shipbroking noted this w ...
Friday, 18 September 15
U.S. COAL PRODUCTION DECLINED 6.7 PER CENT W-W: EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 17.4 million shor ...
Thursday, 17 September 15
COALSPOT HAS LAUNCHED NEW THERMAL COAL INDICES FOR INDONESIAN COAL
COALspot.com has today launched real-time CS (i) Coal Indices.
The Indices represents 3800 kcal/kg GAR, 4200 kcal/kg GAR, 5000 kcal/kg GAR a ...
Thursday, 17 September 15
LOW DEMAND PUSH COAL SWAP DOWN
COALspot.com: Indonesian coal swap for delivery 4Q 2015 declined month on month and gain week over week.
The 4Q swap declined $ 1.77 (-4.17%) ...
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Showing 2806 to 2810 news of total 6871 |
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- Timah Investasi Mineral - Indoneisa
- Banpu Public Company Limited - Thailand
- Uttam Galva Steels Limited - India
- Trasteel International SA, Italy
- Bayan Resources Tbk. - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- AsiaOL BioFuels Corp., Philippines
- Baramulti Group, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Borneo Indobara - Indonesia
- Energy Link Ltd, New Zealand
- Economic Council, Georgia
- Posco Energy - South Korea
- Sical Logistics Limited - India
- Aditya Birla Group - India
- Indian Energy Exchange, India
- Intertek Mineral Services - Indonesia
- Bhoruka Overseas - Indonesia
- Globalindo Alam Lestari - Indonesia
- Tata Chemicals Ltd - India
- Samtan Co., Ltd - South Korea
- Directorate Of Revenue Intelligence - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Savvy Resources Ltd - HongKong
- Standard Chartered Bank - UAE
- Lanco Infratech Ltd - India
- Coal and Oil Company - UAE
- Pendopo Energi Batubara - Indonesia
- McConnell Dowell - Australia
- Indika Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Indian Oil Corporation Limited
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Bhatia International Limited - India
- Ambuja Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Larsen & Toubro Limited - India
- Marubeni Corporation - India
- Gujarat Mineral Development Corp Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Georgia Ports Authority, United States
- Global Green Power PLC Corporation, Philippines
- Bharathi Cement Corporation - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Mercator Lines Limited - India
- Sojitz Corporation - Japan
- Aboitiz Power Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- Global Business Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- VISA Power Limited - India
- PowerSource Philippines DevCo
- Indonesian Coal Mining Association
- White Energy Company Limited
- The Treasury - Australian Government
- Commonwealth Bank - Australia
- Australian Coal Association
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Central Electricity Authority - India
- Siam City Cement PLC, Thailand
- Sarangani Energy Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Electricity Generating Authority of Thailand
- Agrawal Coal Company - India
- Meenaskhi Energy Private Limited - India
- Minerals Council of Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Sidhee Cement - India
- Wilmar Investment Holdings
- Australian Commodity Traders Exchange
- Mjunction Services Limited - India
- Metalloyd Limited - United Kingdom
- Tamil Nadu electricity Board
- Bukit Makmur.PT - Indonesia
- SN Aboitiz Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Xindia Steels Limited - India
- ASAPP Information Group - India
- Parliament of New Zealand
- Romanian Commodities Exchange
- Maheswari Brothers Coal Limited - India
- Ministry of Transport, Egypt
- Carbofer General Trading SA - India
- Miang Besar Coal Terminal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Independent Power Producers Association of India
- Thai Mozambique Logistica
- TeaM Sual Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Chamber of Mines of South Africa
- Ceylon Electricity Board - Sri Lanka
- Kepco SPC Power Corporation, Philippines
- Dalmia Cement Bharat India
- Altura Mining Limited, Indonesia
- South Luzon Thermal Energy Corporation
- Mercuria Energy - Indonesia
- Attock Cement Pakistan Limited
- GN Power Mariveles Coal Plant, Philippines
- Ministry of Mines - Canada
- Petron Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Krishnapatnam Port Company Ltd. - India
- Global Coal Blending Company Limited - Australia
- GAC Shipping (India) Pvt Ltd
- Kalimantan Lumbung Energi - Indonesia
- European Bulk Services B.V. - Netherlands
- Madhucon Powers Ltd - India
- Africa Commodities Group - South Africa
- Straits Asia Resources Limited - Singapore
- Goldman Sachs - Singapore
- Leighton Contractors Pty Ltd - Australia
- PetroVietnam Power Coal Import and Supply Company
- Cement Manufacturers Association - India
- Essar Steel Hazira Ltd - India
- PNOC Exploration Corporation - Philippines
- Grasim Industreis Ltd - India
- Jindal Steel & Power Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Vizag Seaport Private Limited - India
- Merrill Lynch Commodities Europe
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- MS Steel International - UAE
- Price Waterhouse Coopers - Russia
- IHS Mccloskey Coal Group - USA
- Coastal Gujarat Power Limited - India
- Manunggal Multi Energi - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Neyveli Lignite Corporation Ltd, - India
- Renaissance Capital - South Africa
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Meralco Power Generation, Philippines
- Interocean Group of Companies - India
- GVK Power & Infra Limited - India
- The University of Queensland
- Port Waratah Coal Services - Australia
- Antam Resourcindo - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Coalindo Energy - Indonesia
- The State Trading Corporation of India Ltd
- Semirara Mining Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Billiton Holdings Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Malabar Cements Ltd - India
- Parry Sugars Refinery, India
- SMC Global Power, Philippines
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- Planning Commission, India
- Wood Mackenzie - Singapore
- New Zealand Coal & Carbon
- Central Java Power - Indonesia
- Kartika Selabumi Mining - Indonesia
- Electricity Authority, New Zealand
- Holcim Trading Pte Ltd - Singapore
- Sakthi Sugars Limited - India
- Star Paper Mills Limited - India
- Riau Bara Harum - Indonesia
- Toyota Tsusho Corporation, Japan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Bukit Baiduri Energy - Indonesia
- London Commodity Brokers - England
- Formosa Plastics Group - Taiwan
- Mintek Dendrill Indonesia
- Vedanta Resources Plc - India
- Sinarmas Energy and Mining - Indonesia
- Power Finance Corporation Ltd., India
- Barasentosa Lestari - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Edison Trading Spa - Italy
- Kaltim Prima Coal - Indonesia
- Siam City Cement - Thailand
- Jaiprakash Power Ventures ltd
- CNBM International Corporation - China
- GMR Energy Limited - India
- Karaikal Port Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kumho Petrochemical, South Korea
- Bangladesh Power Developement Board
- India Bulls Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Sree Jayajothi Cements Limited - India
- Bhushan Steel Limited - India
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- Rashtriya Ispat Nigam Limited - India
- Medco Energi Mining Internasional
- Cigading International Bulk Terminal - Indonesia
- Videocon Industries ltd - India
- Orica Australia Pty. Ltd.
- Bulk Trading Sa - Switzerland
- PTC India Limited - India
- Indogreen Group - Indonesia
- Kobexindo Tractors - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Singapore Mercantile Exchange
- Makarim & Taira - Indonesia
- Rio Tinto Coal - Australia
- Heidelberg Cement - Germany
- Thiess Contractors Indonesia
- Indo Tambangraya Megah - Indonesia
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