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Posts Tagged ‘electricity’

Coal India Plans JV With Indonesian Mining Company

September 28, 2011 Comments off

“Coal India Ltd. plans to ask the Indonesian government to allocate it a coal mine, and also seek approval to set up a joint venture with a state-run mining company there. Coal India will ask for the approvals at an October meeting of a coal working group set up by the two countries, Interim Chairman Nirmal Chandra Jha said recently.
He didn’t name the Indonesian company or specify the reserves of the mine that Coal India is targeting.

The proposed Indonesian venture will come after a brief overseas pause for Coal India, the world’s largest producer of the fossil fuel. The company has halted its overseas acquisition plans due to delays in getting government approvals. The coal ministry last year told Coal India to invest only in listed overseas companies after allegations of corruption rocked the federal government. Coal India has so far succeeded in getting allocation of only two blocks in Mozambique.”

Source: Wall Street Journal, September 21 2011

Observations:

  • Indian power utilities imported about 42 million tonnes of Indonesian thermal coal last year. Coal fired powerplants produce over half of the country’s electricity. Various Indonesian coal miners are already tied up with Indian financial partners (e.g. Bumi & Tata).
  • Indonesia is working on a ban of exports of coal with low calorific value (<5100kcal/kg), which would threaten part of the thermal coal exports from the country.
  • Indonesia’s energy coal products exports to China has increased by over 25% per year for the past 5 years.

Implications:

  • The Indian government actively tries to reduce secure reliable access to coal via both Coal India and targeted acquisitions by ICVL. As increase of domestic production is slow the government might try to lure foreign miners into operating assets in India to boost productivity.
  • Increased Indian investment interest in Indonesia will pressure the Indonesian government to speed up the regulatory processes around the new Mining Law and the proposed environmental taxes. The new law was introduced over 2 years ago, but implementation regulations are still not fully worked out.

©2011 | Wilfred Visser | thebusinessofmining.com

Rusal’s Deripaska forecasts smelter closures

June 10, 2010 Comments off

“Aluminium producers will shut down as much as 3m tonnes of capacity by the end of the third quarter if metal prices remain at current levels, according to Oleg Deripaska, chief executive of the world’s biggest aluminium producer.

Aluminium prices had tumbled to about $1,900 a tonne, and most producers were unable to cover the costs of powering smelters and distributing the metal, Mr Deripaska told the Financial Times.

‘If [the aluminium price] will be at this level at the end of the second and third quarters, we will see 2m to 3m tonnes shut down, all around the world,’ he said. That would represent about 8 per cent of global production, which stood at 37m tonnes in 2009, according to analyst estimates.”

Source: Financial Times, June 10 2010

Observations:

Cash Buyer Primary Aluminium price (www.lme.com)

  • Aluminium price peaked mid 2008 above $3,000 a tonne. After a dip early 2009 the price is fluctuating around $2,000 a tonne, with break-even price for many producers around $2,100-2,200.
  • Last month Vale sold its Aluminium assets to Norsk Hydro arguing the rising cost of electricity made the business too risky.

Implications:

  • Energy costs will play an increasingly important role in the smelting business. Production costs are increasing so much due to energy price increases, that some smelters will go out of business permanently.
  • When companies can choose where to process, the balance between transportation costs and energy costs is shifting slightly, making transportation of ore over greater distances feasible. However, as both smelting costs and transportation costs are mainly driven by fossil fuel prices, the change will not be disturbing.
  • Smelting in countries where energy prices are not so dependent on fossil fuel prices is becoming increasingly attractive.

©2010 – thebusinessofmining.com

Norsk Hydro buys Vale assets

“Norsk Hydro has agreed to buy the aluminium assets of Vale, the Brazilian metals and mining group, in a $4.9bn deal that will secure the Norwegian company’s raw material supplies for decades. The move will give Norsk Hydro control of Paragominas, the world’s third-biggest bauxite mine, as well as Vale’s alumina refining and aluminium production facilities in Brazil.
Norsk Hydro, Europe’s third largest aluminium maker, said the deal would boost its competitiveness by providing a long-term supply of high-quality, cost-efficient raw materials. The Oslo-based company, 43.8 per cent owned by the Norwegian government, will pay Vale $1.1bn in cash, with the remainder in new Norsk Hydro shares and $700m of assumed net debt.”

Source: Financial Times, May 3 2010

Observations:

  • Norsky Hydro ensures access to large resources of bauxite, thus reducing the risk of price volatility between miners and processers.
  • Vale’s cash position has improved after the combination of this transaction ($600 million cash now + $200 million in 2013 and $200 million in 2015) and last week’s acquisition of the Simandou assets, for which it had to pay only $500 million immediately.
  • Vale gives as a rational that “its participation in the primary aluminum metal industry is small, and has no growth potential due to the lack of access to low-cost sources of power generation, as energy is a key factor for the competitiveness in this business. “ (Source: Vale press release, May 2 2010).

Implications:

  • Vale transfers the risk of electricity costs (and potential associated carbon emission costs) to Norsk Hydro.
  • Vale appears to be focusing more on the iron and steel market. However, in order to reduce dependency on the iron ore price targeted acquisitions of companies with good resources of zinc, chromium & nickel or precious metals (given the current operating margins) are likely.