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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, 28 July 15
INDONESIA DELAYS PLAN TO RAISE COAL ROYALTIES AMID PLUNGING PRICE - JP
The government will postpone a plan to increase royalty payments from coal miners as they are already burdened with the commodity’s plunging ...
Tuesday, 28 July 15
API 5 FOB NEWCASTLE COAL SWAP LOST M-M AND GAINED W-W
COALspot.com: API 5 FOB Newcastle Coal swap for Q3’ 2015 delivery down $ 1.15 per MT (-2.51%) month over month to US$ 44.62 per mt. The swap ...
Monday, 27 July 15
KOMIPO INVITES BIDS FOR TOTAL 545,000 MT OF COAL FOR BORYEONG POWER PLANT
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender to purchase total 545,000 Metric Tons (MT) of coal ...
Monday, 27 July 15
CFR SOUTH CHINA COAL SWAP WEAK M/M; FIRM W/W
COALspot.com: API 8 CFR South China Coal swap for Q3’ 2015 delivery declined US$ 0.92 (1.77%) per MT month over month.
A commodity swap ...
Sunday, 26 July 15
INDO-INDIA OCEAN COAL FREIGHT RATES REMAIN STEADY
COALspot.com: The freight market continued lost steam towards end of the week and all indices were showing downward trend.
The BDI was up by 3 ...
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Showing 2901 to 2905 news of total 6871 |
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- Bulk Trading Sa - Switzerland
- Central Java Power - Indonesia
- TeaM Sual Corporation - Philippines
- Heidelberg Cement - Germany
- The University of Queensland
- Krishnapatnam Port Company Ltd. - India
- PNOC Exploration Corporation - Philippines
- Georgia Ports Authority, United States
- Aboitiz Power Corporation - Philippines
- Lanco Infratech Ltd - India
- Indonesian Coal Mining Association
- Parry Sugars Refinery, India
- Intertek Mineral Services - Indonesia
- Madhucon Powers Ltd - India
- Chamber of Mines of South Africa
- Baramulti Group, Indonesia
- PTC India Limited - India
- Oldendorff Carriers - Singapore
- Makarim & Taira - Indonesia
- Parliament of New Zealand
- White Energy Company Limited
- Sinarmas Energy and Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ministry of Finance - Indonesia
- Merrill Lynch Commodities Europe
- Savvy Resources Ltd - HongKong
- Economic Council, Georgia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement - Thailand
- Agrawal Coal Company - India
- Vijayanagar Sugar Pvt Ltd - India
- Standard Chartered Bank - UAE
- Antam Resourcindo - Indonesia
- Grasim Industreis Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Gujarat Mineral Development Corp Ltd - India
- Australian Coal Association
- Renaissance Capital - South Africa
- Samtan Co., Ltd - South Korea
- Kobexindo Tractors - Indoneisa
- Tamil Nadu electricity Board
- Semirara Mining Corp, Philippines
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Coalindo Energy - Indonesia
- IHS Mccloskey Coal Group - USA
- Indian Oil Corporation Limited
- Energy Link Ltd, New Zealand
- London Commodity Brokers - England
- Latin American Coal - Colombia
- Wood Mackenzie - Singapore
- Sical Logistics Limited - India
- Maheswari Brothers Coal Limited - India
- San Jose City I Power Corp, Philippines
- Romanian Commodities Exchange
- Planning Commission, India
- Therma Luzon, Inc, Philippines
- MS Steel International - UAE
- Minerals Council of Australia
- Ambuja Cements Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Carbofer General Trading SA - India
- Port Waratah Coal Services - Australia
- Indogreen Group - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Kartika Selabumi Mining - Indonesia
- GVK Power & Infra Limited - India
- VISA Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Videocon Industries ltd - India
- Manunggal Multi Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Formosa Plastics Group - Taiwan
- Mintek Dendrill Indonesia
- Sindya Power Generating Company Private Ltd
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Directorate Of Revenue Intelligence - India
- Xindia Steels Limited - India
- Jaiprakash Power Ventures ltd
- Bayan Resources Tbk. - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- International Coal Ventures Pvt Ltd - India
- Coal and Oil Company - UAE
- Price Waterhouse Coopers - Russia
- Petrochimia International Co. Ltd.- Taiwan
- Kepco SPC Power Corporation, Philippines
- India Bulls Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- ICICI Bank Limited - India
- Wilmar Investment Holdings
- SMG Consultants - Indonesia
- GAC Shipping (India) Pvt Ltd
- Mercuria Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Tata Chemicals Ltd - India
- Rio Tinto Coal - Australia
- European Bulk Services B.V. - Netherlands
- Bhoruka Overseas - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Anglo American - United Kingdom
- Australian Commodity Traders Exchange
- Africa Commodities Group - South Africa
- The Treasury - Australian Government
- Timah Investasi Mineral - Indoneisa
- Dalmia Cement Bharat India
- LBH Netherlands Bv - Netherlands
- McConnell Dowell - Australia
- Commonwealth Bank - Australia
- Larsen & Toubro Limited - India
- Global Coal Blending Company Limited - Australia
- Singapore Mercantile Exchange
- Uttam Galva Steels Limited - India
- Siam City Cement PLC, Thailand
- Goldman Sachs - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Bukit Makmur.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Pendopo Energi Batubara - Indonesia
- Petron Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Meralco Power Generation, Philippines
- Indian Energy Exchange, India
- Vizag Seaport Private Limited - India
- New Zealand Coal & Carbon
- Ministry of Transport, Egypt
- Electricity Authority, New Zealand
- Mjunction Services Limited - India
- Salva Resources Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Bahari Cakrawala Sebuku - Indonesia
- Kaltim Prima Coal - Indonesia
- Altura Mining Limited, Indonesia
- SMC Global Power, Philippines
- Meenaskhi Energy Private Limited - India
- Marubeni Corporation - India
- Thiess Contractors Indonesia
- Toyota Tsusho Corporation, Japan
- Star Paper Mills Limited - India
- Indo Tambangraya Megah - Indonesia
- Medco Energi Mining Internasional
- Sojitz Corporation - Japan
- Cigading International Bulk Terminal - Indonesia
- CNBM International Corporation - China
- Mercator Lines Limited - India
- PowerSource Philippines DevCo
- Jindal Steel & Power Ltd - India
- Bangladesh Power Developement Board
- Edison Trading Spa - Italy
- Barasentosa Lestari - Indonesia
- Coastal Gujarat Power Limited - India
- IEA Clean Coal Centre - UK
- Energy Development Corp, Philippines
- Banpu Public Company Limited - Thailand
- Trasteel International SA, Italy
- Maharashtra Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Globalindo Alam Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Aditya Birla Group - India
- Neyveli Lignite Corporation Ltd, - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Holcim Trading Pte Ltd - Singapore
- Indika Energy - Indonesia
- Malabar Cements Ltd - India
- Metalloyd Limited - United Kingdom
- OPG Power Generation Pvt Ltd - India
- Vedanta Resources Plc - India
- Bhatia International Limited - India
- Thai Mozambique Logistica
- South Luzon Thermal Energy Corporation
- Karbindo Abesyapradhi - Indoneisa
- Borneo Indobara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Cement Manufacturers Association - India
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- Bharathi Cement Corporation - India
- Simpson Spence & Young - Indonesia
- Sakthi Sugars Limited - India
- Interocean Group of Companies - India
- Ceylon Electricity Board - Sri Lanka
- Posco Energy - South Korea
- Billiton Holdings Pty Ltd - Australia
- Independent Power Producers Association of India
- Chettinad Cement Corporation Ltd - India
- Orica Mining Services - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Ministry of Mines - Canada
- Eastern Energy - Thailand
- Iligan Light & Power Inc, Philippines
- Deloitte Consulting - India
- Power Finance Corporation Ltd., India
- Global Business Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Kumho Petrochemical, South Korea
- The State Trading Corporation of India Ltd
- Bhushan Steel Limited - India
- Eastern Coal Council - USA
- Straits Asia Resources Limited - Singapore
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- Sarangani Energy Corporation, Philippines
- Electricity Generating Authority of Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Kohat Cement Company Ltd. - Pakistan
- Essar Steel Hazira Ltd - India
- Riau Bara Harum - Indonesia
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