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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, 21 July 15
CHINA'S ENERGY COMMODITY IMPORTS DIVERGING - RICHARD SCOTT | HELLENIC SHIPPING NEWS
Energy commodity imports into China have grown enormously over the past decade, boosting global demand for shipping capacity. But a dramatic change ...
Tuesday, 21 July 15
FOB INDONESIA COAL SWAPS EXTEND LOSS
COALspot.com: Indonesian coal swap for delivery Q3 2015 declined month on month and week over week, this past week. The swaps was lost 0.70%.
...
Tuesday, 21 July 15
Q4'15 FOB RBCT COAL SWAP DECLINES NEARLY 3.13 PER CENT MONTH OVER MONTH
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q3' 2015 declined month over month and week over week.
The Q3 swap was down US$ ...
Monday, 20 July 15
FOB NEWCASTLE COAL SWAP SEE FURTHER DECLINES
COALspot.com: API 5 FOB Newcastle Coal swap for Q3’ 2015 delivery down $ 1.32 per MT (-2.89%) month over month to US$ 44.43 per mt. The swap ...
Monday, 20 July 15
CFR SOUTH CHINA COAL SWAPS GAIN WEEK OVER WEEK
COALspot.com: API 8 CFR South China Coal swap for Q3’ 2015 delivery declined US$ 1.18 (2.27%) per MT month over month.
A commodity swap ...
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Showing 2911 to 2915 news of total 6871 |
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- Interocean Group of Companies - India
- Jaiprakash Power Ventures ltd
- Global Business Power Corporation, Philippines
- McConnell Dowell - Australia
- Meralco Power Generation, Philippines
- Metalloyd Limited - United Kingdom
- Thai Mozambique Logistica
- Toyota Tsusho Corporation, Japan
- Ceylon Electricity Board - Sri Lanka
- Parliament of New Zealand
- Krishnapatnam Port Company Ltd. - India
- Indian Oil Corporation Limited
- New Zealand Coal & Carbon
- Timah Investasi Mineral - Indoneisa
- GMR Energy Limited - India
- Kobexindo Tractors - Indoneisa
- Jorong Barutama Greston.PT - Indonesia
- Sakthi Sugars Limited - India
- Planning Commission, India
- Uttam Galva Steels Limited - India
- Savvy Resources Ltd - HongKong
- MS Steel International - UAE
- Siam City Cement - Thailand
- White Energy Company Limited
- Kepco SPC Power Corporation, Philippines
- CNBM International Corporation - China
- Kumho Petrochemical, South Korea
- Sarangani Energy Corporation, Philippines
- Port Waratah Coal Services - Australia
- Semirara Mining Corp, Philippines
- Mercator Lines Limited - India
- Dalmia Cement Bharat India
- Kalimantan Lumbung Energi - Indonesia
- Simpson Spence & Young - Indonesia
- Karaikal Port Pvt Ltd - India
- Deloitte Consulting - India
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Latin American Coal - Colombia
- Mjunction Services Limited - India
- Bulk Trading Sa - Switzerland
- Sojitz Corporation - Japan
- Energy Development Corp, Philippines
- Economic Council, Georgia
- Kartika Selabumi Mining - Indonesia
- Edison Trading Spa - Italy
- Central Electricity Authority - India
- European Bulk Services B.V. - Netherlands
- Central Java Power - Indonesia
- PTC India Limited - India
- Baramulti Group, Indonesia
- Indian Energy Exchange, India
- Wood Mackenzie - Singapore
- Standard Chartered Bank - UAE
- The State Trading Corporation of India Ltd
- Medco Energi Mining Internasional
- ICICI Bank Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ind-Barath Power Infra Limited - India
- Sree Jayajothi Cements Limited - India
- CIMB Investment Bank - Malaysia
- Sical Logistics Limited - India
- Alfred C Toepfer International GmbH - Germany
- Commonwealth Bank - Australia
- Gujarat Sidhee Cement - India
- Antam Resourcindo - Indonesia
- Africa Commodities Group - South Africa
- Jindal Steel & Power Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Salva Resources Pvt Ltd - India
- ASAPP Information Group - India
- Renaissance Capital - South Africa
- Gujarat Electricity Regulatory Commission - India
- Bhoruka Overseas - Indonesia
- London Commodity Brokers - England
- Binh Thuan Hamico - Vietnam
- Australian Commodity Traders Exchange
- Aboitiz Power Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- OPG Power Generation Pvt Ltd - India
- PowerSource Philippines DevCo
- Cement Manufacturers Association - India
- San Jose City I Power Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Straits Asia Resources Limited - Singapore
- Larsen & Toubro Limited - India
- Semirara Mining and Power Corporation, Philippines
- SMC Global Power, Philippines
- Holcim Trading Pte Ltd - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Orica Australia Pty. Ltd.
- Merrill Lynch Commodities Europe
- Coastal Gujarat Power Limited - India
- Trasteel International SA, Italy
- Global Coal Blending Company Limited - Australia
- Sindya Power Generating Company Private Ltd
- Mintek Dendrill Indonesia
- Borneo Indobara - Indonesia
- Grasim Industreis Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Maheswari Brothers Coal Limited - India
- Romanian Commodities Exchange
- Electricity Authority, New Zealand
- Malabar Cements Ltd - India
- Ministry of Transport, Egypt
- Directorate General of MIneral and Coal - Indonesia
- Vizag Seaport Private Limited - India
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- Kideco Jaya Agung - Indonesia
- Riau Bara Harum - Indonesia
- TeaM Sual Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- India Bulls Power Limited - India
- Aditya Birla Group - India
- Anglo American - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- PNOC Exploration Corporation - Philippines
- Ministry of Finance - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Makarim & Taira - Indonesia
- Chamber of Mines of South Africa
- PetroVietnam Power Coal Import and Supply Company
- The Treasury - Australian Government
- IHS Mccloskey Coal Group - USA
- Indo Tambangraya Megah - Indonesia
- LBH Netherlands Bv - Netherlands
- Billiton Holdings Pty Ltd - Australia
- Star Paper Mills Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Essar Steel Hazira Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Pendopo Energi Batubara - Indonesia
- Posco Energy - South Korea
- Indika Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bukit Makmur.PT - Indonesia
- Ambuja Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Sinarmas Energy and Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Singapore Mercantile Exchange
- Independent Power Producers Association of India
- Marubeni Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Gujarat Mineral Development Corp Ltd - India
- South Luzon Thermal Energy Corporation
- Tamil Nadu electricity Board
- Rio Tinto Coal - Australia
- Kohat Cement Company Ltd. - Pakistan
- AsiaOL BioFuels Corp., Philippines
- Ministry of Mines - Canada
- Petrochimia International Co. Ltd.- Taiwan
- Kaltim Prima Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Meenaskhi Energy Private Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Minerals Council of Australia
- Heidelberg Cement - Germany
- VISA Power Limited - India
- Samtan Co., Ltd - South Korea
- Eastern Energy - Thailand
- Attock Cement Pakistan Limited
- Vedanta Resources Plc - India
- Coalindo Energy - Indonesia
- Australian Coal Association
- Leighton Contractors Pty Ltd - Australia
- Lanco Infratech Ltd - India
- Oldendorff Carriers - Singapore
- Coal and Oil Company - UAE
- Barasentosa Lestari - Indonesia
- Petron Corporation, Philippines
- Videocon Industries ltd - India
- Energy Link Ltd, New Zealand
- Intertek Mineral Services - Indonesia
- The University of Queensland
- Wilmar Investment Holdings
- Altura Mining Limited, Indonesia
- Indogreen Group - Indonesia
- GAC Shipping (India) Pvt Ltd
- Carbofer General Trading SA - India
- Parry Sugars Refinery, India
- Bhushan Steel Limited - India
- Bayan Resources Tbk. - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GVK Power & Infra Limited - India
- Goldman Sachs - Singapore
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Orica Mining Services - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Agrawal Coal Company - India
- SMG Consultants - Indonesia
- Xindia Steels Limited - India
- Indonesian Coal Mining Association
- IEA Clean Coal Centre - UK
- Bangladesh Power Developement Board
- Tata Chemicals Ltd - India
- Georgia Ports Authority, United States
- Bhatia International Limited - India
- Mercuria Energy - Indonesia
- Power Finance Corporation Ltd., India
- Eastern Coal Council - USA
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