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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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Wednesday, 15 July 15
ANY FUTURE IRAN OIL DEAL WILL BOOST SUPPLY FUNDAMENTALS WITH TANKER OWNERS HOPING FROM TEHRAN TO QUICKLY BOOST ITS PRODUCTION
With the Greek “Euro-drama” apparently over, at least for now, Iran’s oil deal still remains elusive, with any potential agreemen ...
Tuesday, 14 July 15
FOB NEWCASTLE COAL SWAPS MAINTAIN OVERALL NEGATIVE TONE THIS PAST WEEK
COALspot.com: API 5 FOB Newcastle Coal swap for Q3’ 2015 delivery down $ 1.02 per MT (-2.23%) month over month to US$ 44.68 per mt. The swap ...
Tuesday, 14 July 15
CFR SOUTH CHINA COAL SWAPS DECLINE THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q3’ 2015 delivery declined US$ 1.47 (2.82%) per MT month over month.
A commodity swap ...
Monday, 13 July 15
THERMAL COAL IMPORTS SOAR 23 PER CENT TO 24.08 MILLION TONNES AT 12 MAJOR INDIAN PORTS
Import of thermal coal jumped 23 per cent to 24.08 million tonnes at 12 major ports in the first quarter of the fiscal, even as the government cont ...
Monday, 13 July 15
THE DRY BULK MARKET CLOSED ON A POSITIVE TONE THIS PAST WEEK
COALspot.com: Despite Greece crisis and turmoil in the stock market across the world , the freight market overall was firm and up in all segments t ...
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Showing 2926 to 2930 news of total 6871 |
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- Interocean Group of Companies - India
- Bangladesh Power Developement Board
- Malabar Cements Ltd - India
- Tata Chemicals Ltd - India
- The Treasury - Australian Government
- VISA Power Limited - India
- Straits Asia Resources Limited - Singapore
- Kideco Jaya Agung - Indonesia
- Timah Investasi Mineral - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sical Logistics Limited - India
- Banpu Public Company Limited - Thailand
- Coal and Oil Company - UAE
- TeaM Sual Corporation - Philippines
- Lanco Infratech Ltd - India
- Merrill Lynch Commodities Europe
- Metalloyd Limited - United Kingdom
- Binh Thuan Hamico - Vietnam
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Coal Council - USA
- MS Steel International - UAE
- Asmin Koalindo Tuhup - Indonesia
- Tamil Nadu electricity Board
- Karbindo Abesyapradhi - Indoneisa
- Vizag Seaport Private Limited - India
- CNBM International Corporation - China
- Uttam Galva Steels Limited - India
- Therma Luzon, Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Indogreen Group - Indonesia
- Thiess Contractors Indonesia
- Romanian Commodities Exchange
- Xindia Steels Limited - India
- Maharashtra Electricity Regulatory Commission - India
- OPG Power Generation Pvt Ltd - India
- McConnell Dowell - Australia
- Port Waratah Coal Services - Australia
- Jorong Barutama Greston.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Energy Development Corp, Philippines
- GMR Energy Limited - India
- Siam City Cement PLC, Thailand
- Mintek Dendrill Indonesia
- Orica Mining Services - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Indian Energy Exchange, India
- Power Finance Corporation Ltd., India
- Sojitz Corporation - Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Mineral Development Corp Ltd - India
- The State Trading Corporation of India Ltd
- San Jose City I Power Corp, Philippines
- Formosa Plastics Group - Taiwan
- Leighton Contractors Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- Cement Manufacturers Association - India
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Finance - Indonesia
- Ambuja Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- ASAPP Information Group - India
- GAC Shipping (India) Pvt Ltd
- SMC Global Power, Philippines
- Parry Sugars Refinery, India
- Georgia Ports Authority, United States
- Central Electricity Authority - India
- European Bulk Services B.V. - Netherlands
- Coalindo Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Videocon Industries ltd - India
- Sakthi Sugars Limited - India
- India Bulls Power Limited - India
- Global Coal Blending Company Limited - Australia
- AsiaOL BioFuels Corp., Philippines
- Global Business Power Corporation, Philippines
- Independent Power Producers Association of India
- Baramulti Group, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Rio Tinto Coal - Australia
- Essar Steel Hazira Ltd - India
- Renaissance Capital - South Africa
- Bharathi Cement Corporation - India
- Meenaskhi Energy Private Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Maheswari Brothers Coal Limited - India
- SN Aboitiz Power Inc, Philippines
- Singapore Mercantile Exchange
- IEA Clean Coal Centre - UK
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kapuas Tunggal Persada - Indonesia
- Petron Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Semirara Mining and Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Meralco Power Generation, Philippines
- Mercator Lines Limited - India
- Salva Resources Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Antam Resourcindo - Indonesia
- London Commodity Brokers - England
- Africa Commodities Group - South Africa
- Mercuria Energy - Indonesia
- Dalmia Cement Bharat India
- Ministry of Mines - Canada
- Electricity Generating Authority of Thailand
- Samtan Co., Ltd - South Korea
- Intertek Mineral Services - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Star Paper Mills Limited - India
- Ind-Barath Power Infra Limited - India
- Australian Coal Association
- Carbofer General Trading SA - India
- Trasteel International SA, Italy
- Goldman Sachs - Singapore
- Thai Mozambique Logistica
- GVK Power & Infra Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Central Java Power - Indonesia
- Bukit Baiduri Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Vedanta Resources Plc - India
- Semirara Mining Corp, Philippines
- New Zealand Coal & Carbon
- Grasim Industreis Ltd - India
- PTC India Limited - India
- Wilmar Investment Holdings
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indian Oil Corporation Limited
- Simpson Spence & Young - Indonesia
- Mjunction Services Limited - India
- Gujarat Sidhee Cement - India
- CIMB Investment Bank - Malaysia
- LBH Netherlands Bv - Netherlands
- Attock Cement Pakistan Limited
- Bulk Trading Sa - Switzerland
- Chamber of Mines of South Africa
- Kepco SPC Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Iligan Light & Power Inc, Philippines
- PowerSource Philippines DevCo
- Rashtriya Ispat Nigam Limited - India
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Oldendorff Carriers - Singapore
- Marubeni Corporation - India
- Kumho Petrochemical, South Korea
- Globalindo Alam Lestari - Indonesia
- PNOC Exploration Corporation - Philippines
- Posco Energy - South Korea
- Pendopo Energi Batubara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Indika Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Riau Bara Harum - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indonesian Coal Mining Association
- Bayan Resources Tbk. - Indonesia
- Sree Jayajothi Cements Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Krishnapatnam Port Company Ltd. - India
- IHS Mccloskey Coal Group - USA
- Chettinad Cement Corporation Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Edison Trading Spa - Italy
- Electricity Authority, New Zealand
- Planning Commission, India
- Eastern Energy - Thailand
- SMG Consultants - Indonesia
- Ministry of Transport, Egypt
- Borneo Indobara - Indonesia
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Madhucon Powers Ltd - India
- Parliament of New Zealand
- Aditya Birla Group - India
- Coastal Gujarat Power Limited - India
- Bukit Makmur.PT - Indonesia
- Jaiprakash Power Ventures ltd
- Orica Australia Pty. Ltd.
- Kartika Selabumi Mining - Indonesia
- Toyota Tsusho Corporation, Japan
- Standard Chartered Bank - UAE
- Savvy Resources Ltd - HongKong
- White Energy Company Limited
- Miang Besar Coal Terminal - Indonesia
- Directorate Of Revenue Intelligence - India
- Karaikal Port Pvt Ltd - India
- Siam City Cement - Thailand
- Aboitiz Power Corporation - Philippines
- Latin American Coal - Colombia
- Heidelberg Cement - Germany
- Holcim Trading Pte Ltd - Singapore
- ICICI Bank Limited - India
- Bhatia International Limited - India
- The University of Queensland
- Australian Commodity Traders Exchange
- Commonwealth Bank - Australia
- Kobexindo Tractors - Indoneisa
- Bhushan Steel Limited - India
- Medco Energi Mining Internasional
- Agrawal Coal Company - India
- Anglo American - United Kingdom
- Larsen & Toubro Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Deloitte Consulting - India
- Barasentosa Lestari - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Altura Mining Limited, Indonesia
- Minerals Council of Australia
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