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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, 08 September 15
FOB RICHARDS BAY COAL SWAPS CONTINUE TO SHOW DECLINING TREND
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$ ...
Tuesday, 08 September 15
GANGAVARAM PORT IN INDIA DISCHARGES RECORD 112,599 MT OF STEAM COAL IN 24 HOURS
COALspot.com: Gangavaram Port, an all weather, multipurpose port with water depth up-to 21 meters, capable of handling fully laden Super Cap ...
Monday, 07 September 15
THE MINE OF THE FUTURE WILL HAVE ONLY TWO EMPLOYEES, A MAN AND A DOG - SCOTT MCGOWAN
"The Technology and Innovation in Mining 2015" production team at Information Exchange Group interviewed Scott Mcgowan, Director, Global ...
Monday, 07 September 15
FOB NEWCASTLE COAL SWAP FOR Q2' 16 DELIVERY CLOSED US CENTS 25 LOWER COMPARED TO Q4' 15
COALspot.com: API 5 FOB Newcastle Coal swap for 4Q’ 2015 delivery declined $0.73 per MT (-1.68%) month over month to US$ 42.65 per mt. The sw ...
Monday, 07 September 15
CFR SOUTH CHINA COAL SWAPS ROSE 1.1 PER CENT WEEK OVER WEEK
COALspot.com: API 8 CFR South China Coal swap for 4Q’ 2015 delivery declined just US$ 1.52 (3 %) per MT month over month.
A commodity sw ...
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Showing 2826 to 2830 news of total 6871 |
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- Madhucon Powers Ltd - India
- Sindya Power Generating Company Private Ltd
- Salva Resources Pvt Ltd - India
- Sojitz Corporation - Japan
- Gujarat Sidhee Cement - India
- GN Power Mariveles Coal Plant, Philippines
- VISA Power Limited - India
- Indian Energy Exchange, India
- Cement Manufacturers Association - India
- Electricity Authority, New Zealand
- Toyota Tsusho Corporation, Japan
- Marubeni Corporation - India
- Parliament of New Zealand
- Bukit Baiduri Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- TeaM Sual Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Lanco Infratech Ltd - India
- Heidelberg Cement - Germany
- Wood Mackenzie - Singapore
- Indian Oil Corporation Limited
- Mintek Dendrill Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Renaissance Capital - South Africa
- Pendopo Energi Batubara - Indonesia
- Banpu Public Company Limited - Thailand
- Port Waratah Coal Services - Australia
- Sree Jayajothi Cements Limited - India
- Chamber of Mines of South Africa
- Goldman Sachs - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kapuas Tunggal Persada - Indonesia
- Sinarmas Energy and Mining - Indonesia
- SMG Consultants - Indonesia
- Straits Asia Resources Limited - Singapore
- Aboitiz Power Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Anglo American - United Kingdom
- Sarangani Energy Corporation, Philippines
- Bhatia International Limited - India
- SMC Global Power, Philippines
- Posco Energy - South Korea
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- Meenaskhi Energy Private Limited - India
- Electricity Generating Authority of Thailand
- Altura Mining Limited, Indonesia
- Power Finance Corporation Ltd., India
- Singapore Mercantile Exchange
- Ministry of Mines - Canada
- Gujarat Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- Jindal Steel & Power Ltd - India
- Videocon Industries ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Vizag Seaport Private Limited - India
- Latin American Coal - Colombia
- Holcim Trading Pte Ltd - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Uttam Galva Steels Limited - India
- Chettinad Cement Corporation Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Bulk Trading Sa - Switzerland
- Leighton Contractors Pty Ltd - Australia
- PowerSource Philippines DevCo
- Thiess Contractors Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meralco Power Generation, Philippines
- Indogreen Group - Indonesia
- GMR Energy Limited - India
- McConnell Dowell - Australia
- Tamil Nadu electricity Board
- CIMB Investment Bank - Malaysia
- Manunggal Multi Energi - Indonesia
- LBH Netherlands Bv - Netherlands
- GVK Power & Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Neyveli Lignite Corporation Ltd, - India
- Dalmia Cement Bharat India
- Global Coal Blending Company Limited - Australia
- Vedanta Resources Plc - India
- Parry Sugars Refinery, India
- Bhoruka Overseas - Indonesia
- Jaiprakash Power Ventures ltd
- Ind-Barath Power Infra Limited - India
- Bangladesh Power Developement Board
- Directorate Of Revenue Intelligence - India
- Agrawal Coal Company - India
- Indika Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- India Bulls Power Limited - India
- Ambuja Cements Ltd - India
- ICICI Bank Limited - India
- Energy Link Ltd, New Zealand
- Standard Chartered Bank - UAE
- Savvy Resources Ltd - HongKong
- Binh Thuan Hamico - Vietnam
- Minerals Council of Australia
- Star Paper Mills Limited - India
- Bukit Makmur.PT - Indonesia
- Trasteel International SA, Italy
- Metalloyd Limited - United Kingdom
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Sakthi Sugars Limited - India
- Edison Trading Spa - Italy
- Mercator Lines Limited - India
- Billiton Holdings Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- Maheswari Brothers Coal Limited - India
- Maharashtra Electricity Regulatory Commission - India
- MS Steel International - UAE
- Barasentosa Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- Bayan Resources Tbk. - Indonesia
- Commonwealth Bank - Australia
- Romanian Commodities Exchange
- IHS Mccloskey Coal Group - USA
- Price Waterhouse Coopers - Russia
- Semirara Mining Corp, Philippines
- Oldendorff Carriers - Singapore
- Baramulti Group, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Carbofer General Trading SA - India
- Planning Commission, India
- Eastern Energy - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PNOC Exploration Corporation - Philippines
- Orica Australia Pty. Ltd.
- Bahari Cakrawala Sebuku - Indonesia
- Essar Steel Hazira Ltd - India
- The University of Queensland
- Mjunction Services Limited - India
- Thai Mozambique Logistica
- Attock Cement Pakistan Limited
- Cigading International Bulk Terminal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Coal and Oil Company - UAE
- Petron Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- ASAPP Information Group - India
- Antam Resourcindo - Indonesia
- European Bulk Services B.V. - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Ministry of Finance - Indonesia
- White Energy Company Limited
- Australian Commodity Traders Exchange
- Indo Tambangraya Megah - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Sical Logistics Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Independent Power Producers Association of India
- Bhushan Steel Limited - India
- AsiaOL BioFuels Corp., Philippines
- Central Electricity Authority - India
- Central Java Power - Indonesia
- Coalindo Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- San Jose City I Power Corp, Philippines
- Aditya Birla Group - India
- PTC India Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Kobexindo Tractors - Indoneisa
- Rio Tinto Coal - Australia
- Australian Coal Association
- Siam City Cement - Thailand
- Medco Energi Mining Internasional
- Kartika Selabumi Mining - Indonesia
- Siam City Cement PLC, Thailand
- Bharathi Cement Corporation - India
- Samtan Co., Ltd - South Korea
- Orica Mining Services - Indonesia
- Indonesian Coal Mining Association
- Grasim Industreis Ltd - India
- The Treasury - Australian Government
- Borneo Indobara - Indonesia
- Global Business Power Corporation, Philippines
- Xindia Steels Limited - India
- South Luzon Thermal Energy Corporation
- Therma Luzon, Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Eastern Coal Council - USA
- Globalindo Alam Lestari - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Kaltim Prima Coal - Indonesia
- The State Trading Corporation of India Ltd
- Tata Chemicals Ltd - India
- Kideco Jaya Agung - Indonesia
- Energy Development Corp, Philippines
- Merrill Lynch Commodities Europe
- Larsen & Toubro Limited - India
- Makarim & Taira - Indonesia
- Deloitte Consulting - India
- Economic Council, Georgia
- New Zealand Coal & Carbon
- CNBM International Corporation - China
- Africa Commodities Group - South Africa
- Malabar Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kumho Petrochemical, South Korea
- Ceylon Electricity Board - Sri Lanka
- Rashtriya Ispat Nigam Limited - India
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