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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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Friday, 24 July 15
U.S PRODUCED 17.2 MMST OF COAL FOR THE WEEK ENDED JULY 18; FELL 11.5% YEAR ON YEAR
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 17.2 million shor ...
Friday, 24 July 15
THE IMPACT OF COLLAPSING CHINESE COAL IMPORTS - CLARKSONS
Global seaborne coal trade is currently projected to drop 1% y-o-y in 2015, which would be the first annual decline in almost three decades. The dr ...
Thursday, 23 July 15
ELEVEN NEW NICKEL SMELTERS ARE TO BE BUILT IN INDONESIA OVER THE NEXT TWO YEARS AT A COST OF $1.4 BILLION
Indonesia’s Most Reputable Nickel Event
Eleven new nickel smelters are to be built in Indonesia over the next two years at a cost of $1. ...
Thursday, 23 July 15
THE CAPESIZE SEGMENT KEPT FOUNDING SUPPORT ON INCREASED DEMAND FROM CHINESE STEEL MILLS - INTERMODAL
The Dry Bulk market closed off on Friday (17July 2015) noting substantial gains and the BDI surpassing the 1,000 points level for the first time af ...
Wednesday, 22 July 15
SHIPPING MARKET INSIGHT - PANOS TSILINGIRIS | INTERMODAL
In both bulk shipping sectors, there are certain, yet different, reasons and strategies to invest. In the wet, buy once you can charter-out long, w ...
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Showing 2906 to 2910 news of total 6871 |
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- Indo Tambangraya Megah - Indonesia
- Edison Trading Spa - Italy
- Bhatia International Limited - India
- Aditya Birla Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Cigading International Bulk Terminal - Indonesia
- Attock Cement Pakistan Limited
- Iligan Light & Power Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Barasentosa Lestari - Indonesia
- Grasim Industreis Ltd - India
- Mintek Dendrill Indonesia
- Sindya Power Generating Company Private Ltd
- Videocon Industries ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- IHS Mccloskey Coal Group - USA
- Ind-Barath Power Infra Limited - India
- European Bulk Services B.V. - Netherlands
- Indonesian Coal Mining Association
- Maheswari Brothers Coal Limited - India
- Sical Logistics Limited - India
- CNBM International Corporation - China
- Tamil Nadu electricity Board
- New Zealand Coal & Carbon
- Ministry of Transport, Egypt
- Trasteel International SA, Italy
- Meenaskhi Energy Private Limited - India
- ASAPP Information Group - India
- Gujarat Electricity Regulatory Commission - India
- India Bulls Power Limited - India
- Medco Energi Mining Internasional
- Africa Commodities Group - South Africa
- Maharashtra Electricity Regulatory Commission - India
- Leighton Contractors Pty Ltd - Australia
- Makarim & Taira - Indonesia
- Siam City Cement PLC, Thailand
- Interocean Group of Companies - India
- Madhucon Powers Ltd - India
- Eastern Coal Council - USA
- Ceylon Electricity Board - Sri Lanka
- Coastal Gujarat Power Limited - India
- Kideco Jaya Agung - Indonesia
- Ministry of Mines - Canada
- The University of Queensland
- SN Aboitiz Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Renaissance Capital - South Africa
- Oldendorff Carriers - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- Bukit Makmur.PT - Indonesia
- Antam Resourcindo - Indonesia
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Star Paper Mills Limited - India
- Goldman Sachs - Singapore
- Orica Mining Services - Indonesia
- IEA Clean Coal Centre - UK
- Samtan Co., Ltd - South Korea
- CIMB Investment Bank - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Straits Asia Resources Limited - Singapore
- Lanco Infratech Ltd - India
- Global Green Power PLC Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Petron Corporation, Philippines
- Xindia Steels Limited - India
- Binh Thuan Hamico - Vietnam
- Mercuria Energy - Indonesia
- Coalindo Energy - Indonesia
- Merrill Lynch Commodities Europe
- Pendopo Energi Batubara - Indonesia
- SMC Global Power, Philippines
- Indian Oil Corporation Limited
- Electricity Authority, New Zealand
- Jorong Barutama Greston.PT - Indonesia
- Sinarmas Energy and Mining - Indonesia
- PNOC Exploration Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Australian Commodity Traders Exchange
- Heidelberg Cement - Germany
- Wilmar Investment Holdings
- London Commodity Brokers - England
- Krishnapatnam Port Company Ltd. - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- Parliament of New Zealand
- Ministry of Finance - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Energy Development Corp, Philippines
- Romanian Commodities Exchange
- Karaikal Port Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Commonwealth Bank - Australia
- Banpu Public Company Limited - Thailand
- Planning Commission, India
- Global Business Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- ICICI Bank Limited - India
- Chamber of Mines of South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Central Java Power - Indonesia
- Riau Bara Harum - Indonesia
- Malabar Cements Ltd - India
- Singapore Mercantile Exchange
- OPG Power Generation Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Baramulti Group, Indonesia
- McConnell Dowell - Australia
- Jindal Steel & Power Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMG Consultants - Indonesia
- Indian Energy Exchange, India
- Latin American Coal - Colombia
- Therma Luzon, Inc, Philippines
- Cement Manufacturers Association - India
- Vijayanagar Sugar Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Deloitte Consulting - India
- Kaltim Prima Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Metalloyd Limited - United Kingdom
- Thiess Contractors Indonesia
- Minerals Council of Australia
- MS Steel International - UAE
- Power Finance Corporation Ltd., India
- Kumho Petrochemical, South Korea
- PowerSource Philippines DevCo
- Aboitiz Power Corporation - Philippines
- Posco Energy - South Korea
- Dalmia Cement Bharat India
- Vizag Seaport Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- San Jose City I Power Corp, Philippines
- Jaiprakash Power Ventures ltd
- Sarangani Energy Corporation, Philippines
- Standard Chartered Bank - UAE
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- Agrawal Coal Company - India
- Petrochimia International Co. Ltd.- Taiwan
- Globalindo Alam Lestari - Indonesia
- Rio Tinto Coal - Australia
- Billiton Holdings Pty Ltd - Australia
- Miang Besar Coal Terminal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Georgia Ports Authority, United States
- Rashtriya Ispat Nigam Limited - India
- Central Electricity Authority - India
- PTC India Limited - India
- Orica Australia Pty. Ltd.
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- Gujarat Sidhee Cement - India
- South Luzon Thermal Energy Corporation
- Bahari Cakrawala Sebuku - Indonesia
- Toyota Tsusho Corporation, Japan
- Electricity Generating Authority of Thailand
- Borneo Indobara - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Bangladesh Power Developement Board
- Bukit Baiduri Energy - Indonesia
- Uttam Galva Steels Limited - India
- Parry Sugars Refinery, India
- Marubeni Corporation - India
- The Treasury - Australian Government
- TeaM Sual Corporation - Philippines
- Mercator Lines Limited - India
- VISA Power Limited - India
- Ambuja Cements Ltd - India
- Thai Mozambique Logistica
- Manunggal Multi Energi - Indonesia
- White Energy Company Limited
- PetroVietnam Power Coal Import and Supply Company
- AsiaOL BioFuels Corp., Philippines
- Bhushan Steel Limited - India
- LBH Netherlands Bv - Netherlands
- Wood Mackenzie - Singapore
- Essar Steel Hazira Ltd - India
- Kartika Selabumi Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Siam City Cement - Thailand
- Vedanta Resources Plc - India
- Salva Resources Pvt Ltd - India
- GMR Energy Limited - India
- Directorate Of Revenue Intelligence - India
- Australian Coal Association
- GVK Power & Infra Limited - India
- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- Formosa Plastics Group - Taiwan
- Global Coal Blending Company Limited - Australia
- Meralco Power Generation, Philippines
- Larsen & Toubro Limited - India
- Bayan Resources Tbk. - Indonesia
- Mjunction Services Limited - India
- Alfred C Toepfer International GmbH - Germany
- Energy Link Ltd, New Zealand
- Kepco SPC Power Corporation, Philippines
- Sakthi Sugars Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indogreen Group - Indonesia
- Holcim Trading Pte Ltd - Singapore
- The State Trading Corporation of India Ltd
- Simpson Spence & Young - Indonesia
- Bhoruka Overseas - Indonesia
- Chettinad Cement Corporation Ltd - India
- Carbofer General Trading SA - India
- Savvy Resources Ltd - HongKong
- Coal and Oil Company - UAE
- Timah Investasi Mineral - Indoneisa
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