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Posts Tagged ‘JV’

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

India Coal JV May Bid for Riversdale Mining

December 15, 2010 Comments off

“India’s steel ministry asked a joint venture of five state-run companies to consider bidding for Riversdale Mining Ltd., in what could further intensify a battle for the Australian coal miner.

Acquiring Riversdale, which has 13 billion tons in coking and thermal coal reserves in its Benga and Zambeze projects in the southern African country of Mozambique, will help the Indian companies secure coal supplies to power an expanding economy. Riversdale said earlier this month it is in talks with Rio Tinto PLC about a 3.55 billion Australian-dollar ($3.53 billion) takeover, but Rio Tinto has yet to submit a formal offer.”

Source: Wall Street Journal, December 14 2010

Observations:

  • Riversdale, listed on the Australian Stock Exchange, is active in coal mining in South Africa and Mozambique. Earlier this month plans of Rio Tinto to offer a small premium for Riversdale become public, while rumors exist that Vale, Tata and NMDC would be interested in acquiring the assets in Mozambique.
  • The Indian coal mining companies that might get involved in bidding for the assets are Coal India, International Coal Ventures Ltd. (ICVL), NTPC, NMDC, Rashtriya Ispat Nigam and Tata, which owns a strategic stake in Riversdale already.

Implications:

  • A joint bid of state controlled companies from India would be one of the first signs of the Indian government pursuing the same strategy as China in securing access to resources abroad. Like China, India has a strong domestic coals supply which is not able to keep up with growing demand.
  • A number of large resources companies have grown in India; Tata Steel, ArcelorMittal, Reliance & Vedanta being the most well-known. However, most of these companies are not state controlled and have positioned their official headquarters in Europe. With the IPO of Coal India and consolidation of other companies the Indian domestic industry gets ready to become active internationally.

©2010 | Wilfred Visser | thebusinessofmining.com

Rio concedes BHP ore merger faces hurdles

October 6, 2010 Comments off

“Rio Tinto has conceded that regulatory obstacles are mounting against its ambitious plans to merge its Australian iron ore operations with those of BHP Billiton, its competitor.

The admission came amid growing speculation that the proposed joint venture was being stymied by regulators amid strong opposition from the global steel industry, which fears the plan would give the two multinational miners increased pricing power.

Competition regulators around the world have expanded their scrutiny of the joint venture and pushed back deadlines on their rulings. One Australian media report has claimed the joint venture, first proposed in June 2009, was ‘dead’.”

Source: Financial Times, October 5 2010

Observations:

  • The JV for Pilbara was planned in order to produce more tonnes of iron ore faster, giving both Rio Tinto and BHP Billiton a competitive advantage over competitor Vale.
  • Australian iron ore accounted for 42% of the total iron ore imports of China in 2009. Rio Tinto ships ore from the Western Australian complex via various ports in Dampier and Port Walcott, while BHP uses a port facility in Port Hedland.

Implications:

  • Regulatory approval is unlikely to be given as the production JV would give the companies too much power in the iron ore market in the region. The dominant position of the big 3 and the strong ties the JV would give BHPB and Rio Tinto would increase the risk of price fixing.
  • European regulators typically approve a merger if the new company does not exceed a market share of 40%, and set conditions in case the share is between 40% and 50% depending on the synergies the companies can achieve. American regulators evaluate the level of consolidation in the industry, using the so-called HHI-index. In both systems the JV would certainly exceed the allowable thresholds for parts of the iron ore market. Apparently the Australian regulators agree with this view.

©2010 | Wilfred Visser | thebusinessofmining.com

ACCC decision on Rio-BHP JV due July 22

June 22, 2010 Comments off

“Australia’s competition watchdog has set a July 22 deadline to review a proposed $US116 billion ($A132.8 billion) iron ore joint venture between BHP Billiton Ltd and Rio Tinto Ltd.

The Australian Competition and Consumer Commission, which began its probe in December, had been due to rule on the joint venture on May 27 but postponed its decision to seek more information from the miners without giving a timeframe for a ruling.

The commission’s website said on Monday that July 22 was now a ‘proposed date’ for an announcement on its findings.”

Source: Business Spectator, June 20 2010

Observations:

  • The Joint Venture is planned to achieve $10 bln in synergies (NPV, thus spread over a long period), a large part of which is achieved by combining transportation infrastructure from the remote Pilbara mines to the iron ore port.
  • Although the Australian watchdog will come with a decision this summer, the European Commission will take much more time to decide on the effects of the JV for the European market.
  • The most likely result from the negotiations of the miners with the government will be an approval of the JV with the condition of a royalty increase.

Implications:

  • Both of the miners are strongly committed to getting the joint venture operational quickly, as they need the additional capacity from the mines in order to retain their market share in the coming years. The proposed increase in resource tax has further increased the necessity of reducing fixed costs in a joint venture agreement.
  • The joint venture between Rio Tinto and BHP Billiton would further increase the risk of implicit pricing arrangements in the iron ore industry. In order to please the regulators, the miners have decided on individually marketing the iron ore. However, organizational ties among the oligopolic producers reduce the transparency of the market. This might be a reason for the European watchdog to impose stricter constraints on the deal.

©2010 – thebusinessofmining.com