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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, 23 June 15
FOB RICHARDS BAY COAL SWAP HAS REMAINED STEADY OVER THE PAST WEEK
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q3' 2015 rose month over month and week over week.
The Q3 swap was up US$ 2.32 ...
Monday, 22 June 15
BORYEONG POWER PLANT TO IMPORT 140K MT OF LCV COAL FOR AUGUST - SEPTEMBER 2015
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender to purchase 140K Metric Tons (MT) of LCV coal for ...
Monday, 22 June 15
CFR SOUTH CHINA COAL SWAP: UP MONTH OVER MONTH; DOWN WEEK OVER WEEK
COALspot.com: API 8 CFR South China Coal swap for Q3’ 2015 delivery rose US$ 0.30 (0.58%) per MT month over month.
A commodity swap is a ...
Monday, 22 June 15
FOB NEWCASTLE COAL SWAP: UP WEEK OVER WEEK AND MONTH OVER MONTH
COALspot.com: API 5 FOB Newcastle Coal swap for Q3’ 2015 delivery up $ 0.54 per MT (1.19%) month over month to US$ 45.87 per mt. The swap was ...
Sunday, 21 June 15
SPOT RATE AVERAGES FOR FREIGHT FROM INDONESIA TO INDIA REMAIN STRONG THIS WEEK
COALspot.com: The freight market was quite firm this week compared to last week. The BDI was up 21% week on week and closed at 779 points. The cape ...
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Showing 2961 to 2965 news of total 6871 |
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- Simpson Spence & Young - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Miang Besar Coal Terminal - Indonesia
- Minerals Council of Australia
- Manunggal Multi Energi - Indonesia
- CNBM International Corporation - China
- Medco Energi Mining Internasional
- Lanco Infratech Ltd - India
- Mintek Dendrill Indonesia
- Sinarmas Energy and Mining - Indonesia
- Indo Tambangraya Megah - Indonesia
- Dalmia Cement Bharat India
- Siam City Cement PLC, Thailand
- Sree Jayajothi Cements Limited - India
- Kapuas Tunggal Persada - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Orica Mining Services - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Grasim Industreis Ltd - India
- Larsen & Toubro Limited - India
- ASAPP Information Group - India
- GAC Shipping (India) Pvt Ltd
- Iligan Light & Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Barasentosa Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- The State Trading Corporation of India Ltd
- Singapore Mercantile Exchange
- Cigading International Bulk Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Antam Resourcindo - Indonesia
- Jaiprakash Power Ventures ltd
- Kepco SPC Power Corporation, Philippines
- Mercator Lines Limited - India
- Tamil Nadu electricity Board
- VISA Power Limited - India
- Posco Energy - South Korea
- Sarangani Energy Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Port Waratah Coal Services - Australia
- Bhoruka Overseas - Indonesia
- Australian Coal Association
- Cement Manufacturers Association - India
- India Bulls Power Limited - India
- Georgia Ports Authority, United States
- Economic Council, Georgia
- Renaissance Capital - South Africa
- Indogreen Group - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Deloitte Consulting - India
- Indian Oil Corporation Limited
- Savvy Resources Ltd - HongKong
- Bulk Trading Sa - Switzerland
- Petron Corporation, Philippines
- McConnell Dowell - Australia
- Sindya Power Generating Company Private Ltd
- Gujarat Electricity Regulatory Commission - India
- New Zealand Coal & Carbon
- Agrawal Coal Company - India
- Pendopo Energi Batubara - Indonesia
- Anglo American - United Kingdom
- Metalloyd Limited - United Kingdom
- Wilmar Investment Holdings
- SMC Global Power, Philippines
- Sojitz Corporation - Japan
- TNB Fuel Sdn Bhd - Malaysia
- Vizag Seaport Private Limited - India
- Indonesian Coal Mining Association
- Indian Energy Exchange, India
- International Coal Ventures Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Attock Cement Pakistan Limited
- PetroVietnam Power Coal Import and Supply Company
- Sakthi Sugars Limited - India
- Global Business Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Siam City Cement - Thailand
- Trasteel International SA, Italy
- Eastern Coal Council - USA
- Electricity Generating Authority of Thailand
- Latin American Coal - Colombia
- PowerSource Philippines DevCo
- Toyota Tsusho Corporation, Japan
- Power Finance Corporation Ltd., India
- Bhatia International Limited - India
- Binh Thuan Hamico - Vietnam
- San Jose City I Power Corp, Philippines
- Uttam Galva Steels Limited - India
- LBH Netherlands Bv - Netherlands
- Timah Investasi Mineral - Indoneisa
- Price Waterhouse Coopers - Russia
- Semirara Mining Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Madhucon Powers Ltd - India
- Sical Logistics Limited - India
- Therma Luzon, Inc, Philippines
- The University of Queensland
- Romanian Commodities Exchange
- IEA Clean Coal Centre - UK
- Planning Commission, India
- Commonwealth Bank - Australia
- Parliament of New Zealand
- IHS Mccloskey Coal Group - USA
- PTC India Limited - India
- Parry Sugars Refinery, India
- SN Aboitiz Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- Interocean Group of Companies - India
- Oldendorff Carriers - Singapore
- Coastal Gujarat Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Australian Commodity Traders Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Xindia Steels Limited - India
- Tata Chemicals Ltd - India
- Straits Asia Resources Limited - Singapore
- European Bulk Services B.V. - Netherlands
- Carbofer General Trading SA - India
- Kobexindo Tractors - Indoneisa
- Eastern Energy - Thailand
- Central Java Power - Indonesia
- Bukit Baiduri Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Thiess Contractors Indonesia
- Global Coal Blending Company Limited - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Central Electricity Authority - India
- Heidelberg Cement - Germany
- Bharathi Cement Corporation - India
- Mjunction Services Limited - India
- Merrill Lynch Commodities Europe
- Edison Trading Spa - Italy
- GMR Energy Limited - India
- Leighton Contractors Pty Ltd - Australia
- Krishnapatnam Port Company Ltd. - India
- Coalindo Energy - Indonesia
- Mercuria Energy - Indonesia
- Rio Tinto Coal - Australia
- Rashtriya Ispat Nigam Limited - India
- Kideco Jaya Agung - Indonesia
- OPG Power Generation Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GVK Power & Infra Limited - India
- Riau Bara Harum - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- TeaM Sual Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Vijayanagar Sugar Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Aboitiz Power Corporation - Philippines
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Mines - Canada
- Independent Power Producers Association of India
- The Treasury - Australian Government
- Ministry of Finance - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bhushan Steel Limited - India
- Chettinad Cement Corporation Ltd - India
- Orica Australia Pty. Ltd.
- Gujarat Sidhee Cement - India
- ICICI Bank Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Standard Chartered Bank - UAE
- Meralco Power Generation, Philippines
- Goldman Sachs - Singapore
- Ambuja Cements Ltd - India
- South Luzon Thermal Energy Corporation
- Karaikal Port Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Energy Development Corp, Philippines
- PNOC Exploration Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- London Commodity Brokers - England
- Malabar Cements Ltd - India
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- Bayan Resources Tbk. - Indonesia
- Formosa Plastics Group - Taiwan
- Marubeni Corporation - India
- Baramulti Group, Indonesia
- Altura Mining Limited, Indonesia
- Bangladesh Power Developement Board
- Directorate Of Revenue Intelligence - India
- Energy Link Ltd, New Zealand
- Jindal Steel & Power Ltd - India
- White Energy Company Limited
- SMG Consultants - Indonesia
- Kaltim Prima Coal - Indonesia
- Indika Energy - Indonesia
- Coal and Oil Company - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kartika Selabumi Mining - Indonesia
- Ministry of Transport, Egypt
- Essar Steel Hazira Ltd - India
- Borneo Indobara - Indonesia
- Banpu Public Company Limited - Thailand
- Samtan Co., Ltd - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Salva Resources Pvt Ltd - India
- Makarim & Taira - Indonesia
- Maheswari Brothers Coal Limited - India
- Semirara Mining and Power Corporation, Philippines
- Star Paper Mills Limited - India
- Aditya Birla Group - India
- Electricity Authority, New Zealand
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- MS Steel International - UAE
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
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