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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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Monday, 18 May 15
Q1' 16 API 8 CFR SOUTH CHINA COAL SWAP CLOSED HIGHER THAN Q3' 15 CLOSING PRICE
COALspot.com: API 8 CFR South China Coal swap for Q3’ 2015 delivery up US$ 1.05 (2.10%) per MT month over month and US$ 0.53 (1.05%) pe ...
Sunday, 17 May 15
INDONESIA - INDIA FREIGHTS RATES EXPECTED TO FLAT TO SOFT NEXT WEEK
COALspot.com: The BDI was up by 10.45% and closed at 634 points week on week, while the Cape index saws big jump or up almost 55% for the same peri ...
Friday, 15 May 15
DRY BULK AND CONTAINER SHIPPING TO REMAIN WEAK, OUTLOOK FOR PORTS AND TANKERS POSITIVE - DREWRY MARITIME EQUITY RESEARCH
Global economy is in a gradual recovery mode, sending mixed signals to investors. Chinese economic data continues to remain weak as economy transit ...
Friday, 15 May 15
COAL PRODUCTION IN U.S DOWN 1.4 MILLION TONS FOR THE WEEK ENDING MAY 8
COALspot.com – United States the second largest coal producer in the world has produced approximately totaled an estimated 16.0 million short ...
Wednesday, 13 May 15
MARKET INSIGHT - KONSTANTINOS KONTOMICHIS
The EU governments in an effort to face their economic crisis individually are facing lack of political cohesion. This reflects back to each econom ...
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Showing 3021 to 3025 news of total 6871 |
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- Power Finance Corporation Ltd., India
- Kaltim Prima Coal - Indonesia
- CNBM International Corporation - China
- Sakthi Sugars Limited - India
- Cigading International Bulk Terminal - Indonesia
- Australian Coal Association
- Ministry of Mines - Canada
- Vizag Seaport Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- The University of Queensland
- Indian Energy Exchange, India
- Meralco Power Generation, Philippines
- Ind-Barath Power Infra Limited - India
- Uttam Galva Steels Limited - India
- Economic Council, Georgia
- Bukit Baiduri Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Trasteel International SA, Italy
- Coalindo Energy - Indonesia
- Africa Commodities Group - South Africa
- Australian Commodity Traders Exchange
- Bangladesh Power Developement Board
- Mintek Dendrill Indonesia
- Heidelberg Cement - Germany
- Meenaskhi Energy Private Limited - India
- Samtan Co., Ltd - South Korea
- Mjunction Services Limited - India
- LBH Netherlands Bv - Netherlands
- PTC India Limited - India
- Ceylon Electricity Board - Sri Lanka
- Wilmar Investment Holdings
- Bhoruka Overseas - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parry Sugars Refinery, India
- Energy Link Ltd, New Zealand
- Independent Power Producers Association of India
- Renaissance Capital - South Africa
- Gujarat Mineral Development Corp Ltd - India
- MS Steel International - UAE
- Petron Corporation, Philippines
- IEA Clean Coal Centre - UK
- Binh Thuan Hamico - Vietnam
- Coastal Gujarat Power Limited - India
- Siam City Cement - Thailand
- McConnell Dowell - Australia
- Banpu Public Company Limited - Thailand
- Lanco Infratech Ltd - India
- Energy Development Corp, Philippines
- Standard Chartered Bank - UAE
- Antam Resourcindo - Indonesia
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- Semirara Mining and Power Corporation, Philippines
- GMR Energy Limited - India
- Indika Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- International Coal Ventures Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Globalindo Alam Lestari - Indonesia
- Thai Mozambique Logistica
- Rio Tinto Coal - Australia
- Manunggal Multi Energi - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Sarangani Energy Corporation, Philippines
- Indonesian Coal Mining Association
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- Bhushan Steel Limited - India
- Xindia Steels Limited - India
- The Treasury - Australian Government
- Ambuja Cements Ltd - India
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- The State Trading Corporation of India Ltd
- Romanian Commodities Exchange
- Carbofer General Trading SA - India
- Oldendorff Carriers - Singapore
- Planning Commission, India
- Makarim & Taira - Indonesia
- Minerals Council of Australia
- Kalimantan Lumbung Energi - Indonesia
- Riau Bara Harum - Indonesia
- Larsen & Toubro Limited - India
- Cement Manufacturers Association - India
- Global Business Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Therma Luzon, Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Ministry of Transport, Egypt
- Maheswari Brothers Coal Limited - India
- Thiess Contractors Indonesia
- Kepco SPC Power Corporation, Philippines
- Deloitte Consulting - India
- Attock Cement Pakistan Limited
- Price Waterhouse Coopers - Russia
- Siam City Cement PLC, Thailand
- Iligan Light & Power Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Chettinad Cement Corporation Ltd - India
- Edison Trading Spa - Italy
- London Commodity Brokers - England
- TeaM Sual Corporation - Philippines
- VISA Power Limited - India
- Indian Oil Corporation Limited
- Global Green Power PLC Corporation, Philippines
- White Energy Company Limited
- Mercator Lines Limited - India
- Eastern Coal Council - USA
- Posco Energy - South Korea
- Rashtriya Ispat Nigam Limited - India
- SMG Consultants - Indonesia
- Bhatia International Limited - India
- SN Aboitiz Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- Holcim Trading Pte Ltd - Singapore
- Aditya Birla Group - India
- Karaikal Port Pvt Ltd - India
- Electricity Authority, New Zealand
- Savvy Resources Ltd - HongKong
- Tata Chemicals Ltd - India
- Salva Resources Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Singapore Mercantile Exchange
- Chamber of Mines of South Africa
- Marubeni Corporation - India
- Jaiprakash Power Ventures ltd
- Miang Besar Coal Terminal - Indonesia
- Interocean Group of Companies - India
- SMC Global Power, Philippines
- Leighton Contractors Pty Ltd - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Altura Mining Limited, Indonesia
- Kideco Jaya Agung - Indonesia
- PNOC Exploration Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Georgia Ports Authority, United States
- Malabar Cements Ltd - India
- New Zealand Coal & Carbon
- Electricity Generating Authority of Thailand
- Semirara Mining Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Port Waratah Coal Services - Australia
- Central Electricity Authority - India
- Formosa Plastics Group - Taiwan
- Tamil Nadu electricity Board
- Toyota Tsusho Corporation, Japan
- Commonwealth Bank - Australia
- GVK Power & Infra Limited - India
- Sical Logistics Limited - India
- Gujarat Electricity Regulatory Commission - India
- PetroVietnam Power Coal Import and Supply Company
- Directorate General of MIneral and Coal - Indonesia
- Simpson Spence & Young - Indonesia
- Gujarat Sidhee Cement - India
- Krishnapatnam Port Company Ltd. - India
- Bayan Resources Tbk. - Indonesia
- Coal and Oil Company - UAE
- Indo Tambangraya Megah - Indonesia
- ASAPP Information Group - India
- San Jose City I Power Corp, Philippines
- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Videocon Industries ltd - India
- Bukit Makmur.PT - Indonesia
- Parliament of New Zealand
- Grasim Industreis Ltd - India
- Bharathi Cement Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vedanta Resources Plc - India
- OPG Power Generation Pvt Ltd - India
- Orica Mining Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Madhucon Powers Ltd - India
- Indogreen Group - Indonesia
- Dalmia Cement Bharat India
- Merrill Lynch Commodities Europe
- Bukit Asam (Persero) Tbk - Indonesia
- CIMB Investment Bank - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Medco Energi Mining Internasional
- South Luzon Thermal Energy Corporation
- Mercuria Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Aboitiz Power Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Latin American Coal - Colombia
- Sindya Power Generating Company Private Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Orica Australia Pty. Ltd.
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Goldman Sachs - Singapore
- Baramulti Group, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Global Coal Blending Company Limited - Australia
- Kapuas Tunggal Persada - Indonesia
- Bulk Trading Sa - Switzerland
- Metalloyd Limited - United Kingdom
- Agrawal Coal Company - India
- Kartika Selabumi Mining - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Central Java Power - Indonesia
- Kobexindo Tractors - Indoneisa
- Jorong Barutama Greston.PT - Indonesia
- Jindal Steel & Power Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Timah Investasi Mineral - Indoneisa
- Ministry of Finance - Indonesia
- Eastern Energy - Thailand
- Sinarmas Energy and Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Borneo Indobara - Indonesia
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