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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, 22 March 24
INDONESIA APPROVES 922.14 MLN T COAL PRODUCTION QUOTA FOR 2024, ABOVE TARGET - REUTERS
Indonesia has approved coal production quotas totalling 922.14 million metric tons for 2024, Bambang Suswantono, a senior official at the mining mi ...
Friday, 22 March 24
CHINA COAL INDUSTRY GROUP EXPECTS OUTPUT GROWTH TO SLOW IN 2024 - REUTERS
China’s coal output is expected to increase 36 million metric tons, or 0.8%, to about 4.7 billion tonnes in 2024, a Chinese coal industry gro ...
Monday, 18 March 24
THREE KEY TAKEAWAYS FROM OUR EUROPE GAS MARKETS SHORT-TERM OUTLOOK Q1 2024 - WOOD MACKENZIE
European gas prices are currently back to pre-crisis levels, but with a complex series of factors affecting future supply and demand, are they set ...
Wednesday, 06 March 24
INDONESIA AIMS TO FINISH MINING OUTPUT QUOTAS APPROVAL BY END-MARCH, OFFICIAL SAYS - REUTERS
Indonesia’s has approved the mining production quotarequests from more than 120mineral companies and aims to complete the approval process th ...
Monday, 04 March 24
IS YOUR GUARANTEE A GUARANTEE? NOTE TO SHIPOWNERS - GARD
KNOWLEDGE TO ELEVATE
The law of guarantees is not always obvious or easy to understand without proper guidance. This article clarifies the dif ...
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Showing 26 to 30 news of total 6871 |
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- Pendopo Energi Batubara - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sojitz Corporation - Japan
- Iligan Light & Power Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Rashtriya Ispat Nigam Limited - India
- Indian Energy Exchange, India
- PowerSource Philippines DevCo
- Kideco Jaya Agung - Indonesia
- Star Paper Mills Limited - India
- Edison Trading Spa - Italy
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Banpu Public Company Limited - Thailand
- Oldendorff Carriers - Singapore
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement - Thailand
- CNBM International Corporation - China
- Kobexindo Tractors - Indoneisa
- Meenaskhi Energy Private Limited - India
- Central Electricity Authority - India
- Directorate General of MIneral and Coal - Indonesia
- VISA Power Limited - India
- Sree Jayajothi Cements Limited - India
- Indika Energy - Indonesia
- Mintek Dendrill Indonesia
- SN Aboitiz Power Inc, Philippines
- Attock Cement Pakistan Limited
- Directorate Of Revenue Intelligence - India
- Wood Mackenzie - Singapore
- Romanian Commodities Exchange
- GVK Power & Infra Limited - India
- Bukit Makmur.PT - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Planning Commission, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bahari Cakrawala Sebuku - Indonesia
- Bharathi Cement Corporation - India
- Electricity Authority, New Zealand
- Electricity Generating Authority of Thailand
- Sinarmas Energy and Mining - Indonesia
- Bhushan Steel Limited - India
- CIMB Investment Bank - Malaysia
- Samtan Co., Ltd - South Korea
- Latin American Coal - Colombia
- Metalloyd Limited - United Kingdom
- Eastern Energy - Thailand
- MS Steel International - UAE
- Ministry of Transport, Egypt
- Mercuria Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Trasteel International SA, Italy
- White Energy Company Limited
- Karaikal Port Pvt Ltd - India
- Tamil Nadu electricity Board
- PetroVietnam Power Coal Import and Supply Company
- Bulk Trading Sa - Switzerland
- Asmin Koalindo Tuhup - Indonesia
- LBH Netherlands Bv - Netherlands
- Tata Chemicals Ltd - India
- The State Trading Corporation of India Ltd
- Commonwealth Bank - Australia
- Port Waratah Coal Services - Australia
- Indo Tambangraya Megah - Indonesia
- Economic Council, Georgia
- Agrawal Coal Company - India
- Sical Logistics Limited - India
- Makarim & Taira - Indonesia
- GMR Energy Limited - India
- IEA Clean Coal Centre - UK
- Pipit Mutiara Jaya. PT, Indonesia
- Vedanta Resources Plc - India
- Simpson Spence & Young - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Straits Asia Resources Limited - Singapore
- San Jose City I Power Corp, Philippines
- Aditya Birla Group - India
- Chamber of Mines of South Africa
- Meralco Power Generation, Philippines
- McConnell Dowell - Australia
- Parry Sugars Refinery, India
- Savvy Resources Ltd - HongKong
- Anglo American - United Kingdom
- Xindia Steels Limited - India
- Dalmia Cement Bharat India
- Grasim Industreis Ltd - India
- India Bulls Power Limited - India
- South Luzon Thermal Energy Corporation
- Timah Investasi Mineral - Indoneisa
- SMC Global Power, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Indogreen Group - Indonesia
- Thiess Contractors Indonesia
- Cigading International Bulk Terminal - Indonesia
- ICICI Bank Limited - India
- Marubeni Corporation - India
- Kartika Selabumi Mining - Indonesia
- Lanco Infratech Ltd - India
- Renaissance Capital - South Africa
- The Treasury - Australian Government
- Bukit Baiduri Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Altura Mining Limited, Indonesia
- Miang Besar Coal Terminal - Indonesia
- The University of Queensland
- Larsen & Toubro Limited - India
- Coastal Gujarat Power Limited - India
- Global Business Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Neyveli Lignite Corporation Ltd, - India
- PTC India Limited - India
- Central Java Power - Indonesia
- Parliament of New Zealand
- Ministry of Mines - Canada
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhoruka Overseas - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Gujarat Sidhee Cement - India
- Standard Chartered Bank - UAE
- Bhatia International Limited - India
- Therma Luzon, Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Videocon Industries ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Energy Link Ltd, New Zealand
- Eastern Coal Council - USA
- TeaM Sual Corporation - Philippines
- New Zealand Coal & Carbon
- Vizag Seaport Private Limited - India
- London Commodity Brokers - England
- Singapore Mercantile Exchange
- Riau Bara Harum - Indonesia
- Antam Resourcindo - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Leighton Contractors Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Uttam Galva Steels Limited - India
- Chettinad Cement Corporation Ltd - India
- Ministry of Finance - Indonesia
- Interocean Group of Companies - India
- Minerals Council of Australia
- GAC Shipping (India) Pvt Ltd
- Formosa Plastics Group - Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Mercator Lines Limited - India
- Energy Development Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Orica Mining Services - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- Thai Mozambique Logistica
- Gujarat Electricity Regulatory Commission - India
- Kumho Petrochemical, South Korea
- Posco Energy - South Korea
- Cement Manufacturers Association - India
- Krishnapatnam Port Company Ltd. - India
- ASAPP Information Group - India
- Sakthi Sugars Limited - India
- Kaltim Prima Coal - Indonesia
- Siam City Cement PLC, Thailand
- Semirara Mining Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Carbofer General Trading SA - India
- Mjunction Services Limited - India
- Coalindo Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- Wilmar Investment Holdings
- Barasentosa Lestari - Indonesia
- OPG Power Generation Pvt Ltd - India
- SMG Consultants - Indonesia
- Ind-Barath Power Infra Limited - India
- Coal and Oil Company - UAE
- Medco Energi Mining Internasional
- Bayan Resources Tbk. - Indonesia
- Aboitiz Power Corporation - Philippines
- Merrill Lynch Commodities Europe
- Orica Australia Pty. Ltd.
- Jaiprakash Power Ventures ltd
- Intertek Mineral Services - Indonesia
- Goldman Sachs - Singapore
- Bangladesh Power Developement Board
- Borneo Indobara - Indonesia
- Global Coal Blending Company Limited - Australia
- Toyota Tsusho Corporation, Japan
- Alfred C Toepfer International GmbH - Germany
- Africa Commodities Group - South Africa
- Madhucon Powers Ltd - India
- Kepco SPC Power Corporation, Philippines
- Indian Oil Corporation Limited
- Semirara Mining and Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Ceylon Electricity Board - Sri Lanka
- Kapuas Tunggal Persada - Indonesia
- Australian Commodity Traders Exchange
- Power Finance Corporation Ltd., India
- Heidelberg Cement - Germany
- Ambuja Cements Ltd - India
- Rio Tinto Coal - Australia
- Billiton Holdings Pty Ltd - Australia
- Independent Power Producers Association of India
- Georgia Ports Authority, United States
- International Coal Ventures Pvt Ltd - India
- Petron Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Baramulti Group, Indonesia
- Malabar Cements Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Indonesian Coal Mining Association
- Salva Resources Pvt Ltd - India
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