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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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Thursday, 17 September 15
MARKET INSIGHT - KONSTANTINOS KONTOMICHIS
Having experienced, as it was much anticipated, a poor 1st half combined with negative forecasts, summer, in sharp contrast, proved to be more hope ...
Wednesday, 16 September 15
SLOWER GROWTH IN WORLD COAL DEMAND AND LOWER INTERNATIONAL COAL PRICES LED A DECLINE IN INDONESIAN COAL PRODUCTION
COALspot.com: Slower growth in world coal demand particularly China and lower international coal prices have led to a decline in Indonesian coal pr ...
Wednesday, 16 September 15
HIGHER TAXES COULD LEAD GREEK SHIP OWNERS OUT OF THE COUNTRY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
A potential taxation overhaul of the shipping industry in Hellas, which could see the loss of particular tax benefits for ship owners, could lead t ...
Tuesday, 15 September 15
WORLD SEABORNE TRADE: ENTERING INTO A ROLE REVERSAL? - CLARKSONS
Over the past decade, world seaborne trade growth has been dominated by dry bulk and container trade. However, developments in the global economy t ...
Tuesday, 15 September 15
Q2'16 RICHARDS BAY COAL SWAPS DIP TO $ 51.10 PER TON
COALspot.com: API4 FOB Richards Bay Coal swap for delivery 4Q' 2015 declined week over week and month over month.
The 4Q swap was down US$ ...
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Showing 2811 to 2815 news of total 6871 |
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- Petron Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- GVK Power & Infra Limited - India
- PowerSource Philippines DevCo
- Oldendorff Carriers - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
- Vizag Seaport Private Limited - India
- Aboitiz Power Corporation - Philippines
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ambuja Cements Ltd - India
- VISA Power Limited - India
- Videocon Industries ltd - India
- Kobexindo Tractors - Indoneisa
- Aditya Birla Group - India
- Altura Mining Limited, Indonesia
- India Bulls Power Limited - India
- Madhucon Powers Ltd - India
- Energy Link Ltd, New Zealand
- Borneo Indobara - Indonesia
- Romanian Commodities Exchange
- Cigading International Bulk Terminal - Indonesia
- Orica Australia Pty. Ltd.
- GAC Shipping (India) Pvt Ltd
- Malabar Cements Ltd - India
- Global Green Power PLC Corporation, Philippines
- Electricity Authority, New Zealand
- Semirara Mining and Power Corporation, Philippines
- Planning Commission, India
- Pipit Mutiara Jaya. PT, Indonesia
- SN Aboitiz Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- Kaltim Prima Coal - Indonesia
- Thai Mozambique Logistica
- Ministry of Mines - Canada
- Simpson Spence & Young - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Sojitz Corporation - Japan
- Carbofer General Trading SA - India
- IEA Clean Coal Centre - UK
- Sinarmas Energy and Mining - Indonesia
- Kideco Jaya Agung - Indonesia
- Therma Luzon, Inc, Philippines
- Barasentosa Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- The State Trading Corporation of India Ltd
- Essar Steel Hazira Ltd - India
- Gujarat Sidhee Cement - India
- Meralco Power Generation, Philippines
- White Energy Company Limited
- Australian Coal Association
- Heidelberg Cement - Germany
- Africa Commodities Group - South Africa
- OPG Power Generation Pvt Ltd - India
- PTC India Limited - India
- Dalmia Cement Bharat India
- Gujarat Electricity Regulatory Commission - India
- Mercuria Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jindal Steel & Power Ltd - India
- Larsen & Toubro Limited - India
- Cement Manufacturers Association - India
- Port Waratah Coal Services - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- International Coal Ventures Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Samtan Co., Ltd - South Korea
- The Treasury - Australian Government
- Metalloyd Limited - United Kingdom
- Rio Tinto Coal - Australia
- Karbindo Abesyapradhi - Indoneisa
- Mjunction Services Limited - India
- Bukit Makmur.PT - Indonesia
- SMC Global Power, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Development Corp, Philippines
- Deloitte Consulting - India
- South Luzon Thermal Energy Corporation
- Grasim Industreis Ltd - India
- Anglo American - United Kingdom
- Indian Energy Exchange, India
- Central Java Power - Indonesia
- Vedanta Resources Plc - India
- Tamil Nadu electricity Board
- Sindya Power Generating Company Private Ltd
- Sarangani Energy Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- CNBM International Corporation - China
- Bayan Resources Tbk. - Indonesia
- Bangladesh Power Developement Board
- Gujarat Mineral Development Corp Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Sree Jayajothi Cements Limited - India
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- Posco Energy - South Korea
- Thiess Contractors Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Siam City Cement PLC, Thailand
- Electricity Generating Authority of Thailand
- Star Paper Mills Limited - India
- Holcim Trading Pte Ltd - Singapore
- Bhatia International Limited - India
- GMR Energy Limited - India
- Billiton Holdings Pty Ltd - Australia
- Iligan Light & Power Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Savvy Resources Ltd - HongKong
- Indonesian Coal Mining Association
- Medco Energi Mining Internasional
- European Bulk Services B.V. - Netherlands
- AsiaOL BioFuels Corp., Philippines
- Power Finance Corporation Ltd., India
- Singapore Mercantile Exchange
- Bharathi Cement Corporation - India
- Sical Logistics Limited - India
- Chettinad Cement Corporation Ltd - India
- ASAPP Information Group - India
- Mercator Lines Limited - India
- Kapuas Tunggal Persada - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Siam City Cement - Thailand
- Merrill Lynch Commodities Europe
- Meenaskhi Energy Private Limited - India
- Sakthi Sugars Limited - India
- Independent Power Producers Association of India
- Bukit Baiduri Energy - Indonesia
- Indogreen Group - Indonesia
- San Jose City I Power Corp, Philippines
- Coal and Oil Company - UAE
- CIMB Investment Bank - Malaysia
- Riau Bara Harum - Indonesia
- Karaikal Port Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Semirara Mining Corp, Philippines
- Wilmar Investment Holdings
- Rashtriya Ispat Nigam Limited - India
- Kepco SPC Power Corporation, Philippines
- Interocean Group of Companies - India
- Straits Asia Resources Limited - Singapore
- Baramulti Group, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- London Commodity Brokers - England
- Edison Trading Spa - Italy
- Latin American Coal - Colombia
- Attock Cement Pakistan Limited
- The University of Queensland
- Petrochimia International Co. Ltd.- Taiwan
- Jaiprakash Power Ventures ltd
- Commonwealth Bank - Australia
- Indian Oil Corporation Limited
- Australian Commodity Traders Exchange
- Eastern Coal Council - USA
- Maheswari Brothers Coal Limited - India
- Minerals Council of Australia
- MS Steel International - UAE
- Ministry of Transport, Egypt
- Ministry of Finance - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Banpu Public Company Limited - Thailand
- TeaM Sual Corporation - Philippines
- Formosa Plastics Group - Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Georgia Ports Authority, United States
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Trasteel International SA, Italy
- McConnell Dowell - Australia
- Kartika Selabumi Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Xindia Steels Limited - India
- Mintek Dendrill Indonesia
- Chamber of Mines of South Africa
- Makarim & Taira - Indonesia
- New Zealand Coal & Carbon
- Manunggal Multi Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Wood Mackenzie - Singapore
- Indo Tambangraya Megah - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Asmin Koalindo Tuhup - Indonesia
- Kumho Petrochemical, South Korea
- Ceylon Electricity Board - Sri Lanka
- Toyota Tsusho Corporation, Japan
- SMG Consultants - Indonesia
- IHS Mccloskey Coal Group - USA
- Directorate Of Revenue Intelligence - India
- Bhoruka Overseas - Indonesia
- ICICI Bank Limited - India
- Renaissance Capital - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Orica Mining Services - Indonesia
- Economic Council, Georgia
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Agrawal Coal Company - India
- Vijayanagar Sugar Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Intertek Mineral Services - Indonesia
- Pendopo Energi Batubara - Indonesia
- PNOC Exploration Corporation - Philippines
- Ind-Barath Power Infra Limited - India
- Uttam Galva Steels Limited - India
- Eastern Energy - Thailand
- Central Electricity Authority - India
- Parliament of New Zealand
- Indika Energy - Indonesia
- Standard Chartered Bank - UAE
- Bhushan Steel Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Tata Chemicals Ltd - India
- Timah Investasi Mineral - Indoneisa
- LBH Netherlands Bv - Netherlands
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