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Posts Tagged ‘thermal coal’

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

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GVK Acquires Majority Stake in Hancock

September 19, 2011 Comments off

“The GVK group said Friday it has acquired a majority stake in the Hancock coal project in Queensland, Australia, for $1.26 billion to secure thermal coal supplies for its planned power plants in India. It has acquired a 79% stake in the two Alpha mines, 100% of the Kevin’s Corner mine, as well as full ownership of ongoing rail and port projects connecting the Hancock coal projects.

The Hancock group, led by billionaire Australian businesswoman Gina Rinehart, said in a separate statement that GVK will pay $500 million up-front and the rest in phases. It will pay $200 million one year after the deal closes, and $560 million on the financial close of the coal project, anticipated to be in 2012. The GVK group owns and operates power, airport and other infrastructure projects in India, most of them through its listed entity, GVK Power & Infrastructure Ltd.”

Source: Wall Street Journal, September 19 2011

Observations:

  • GVK secures long term access to at least 20mln tons of coal a year, approx. a quarter of the total planned production of Hancock coal.
  • GVK has coal power projects in India in Punjbab and Goindwal Sahib, and owns 2 small coal mining projects in the state of Jharkhand (Tokisud and Seregarha).

Implications:

  • Indian companies are increasingly looking abroad to secure coal access. Both thermal coal and metallurgical coal are in demand, as coal mining capacity does not keep up with high economic growth.
  • For Hancock the sale of the coal projects frees up cash to develop the current project further and to pursue other opportunities more aggressively. Next to Hancock coal the group is involved in the Hope Downs iron ore project and the Jacaranda Alliance Joint Venture.

©2011 | Wilfred Visser | thebusinessofmining.com

Rio Tinto suffers decline in output

July 19, 2011 Comments off

“Rio Tinto revealed a steep decline in output at the world’s largest copper mine, demonstrating the mining industry’s difficulties supplying enough copper to keep up with rising global demand. In the first six months of the year Rio’s share of copper production at Escondida, the Chilean mine that accounted for 7 per cent of global production last year, fell 23 per cent to 118,000 tonnes over the same period in 2010.

The drop at Escondida – whose ownership is split between BHP Billiton, Rio, and Mitsubishi – dragged the miner’s total copper output lower by 18 per cent to 273,000 tonnes. Rio, which published its mine-production report on Thursday, disclosed the drop ahead of BHP, the larger partner at Escondida. The production report came ahead of the big miners disclosing their financial results for the first half.

Copper’s deteriorating supply base has helped push the price of the red metal above $9,000 per tonne this year. Analysts expect supply-side problems to influence Rio’s and BHP’s earnings from copper, despite the high profit margins they are enjoying.”

Source: Financial Times, July 15 2011

Observations:

  • Iron ore, thermal coal, and bauxite production increased by 12%, 18%, and 11% respectively compared to the same quarter last year. Main productivity issues are in copper (-24%) and coking coal (-26%).
  • Rio quotes lower grades at the Escondida and Kennecott copper operations as the key reason for the drop in copper production. Weather conditions are the key reason for lower coking coal production.

Implications:

  • Rio Tinto has a very strong portfolio of copper projects, but grades of remaining ore in many old projects is rather low. Other companies mining similar types of deposits face the same issue, resulting in both higher production costs and lower production with the same equipment fleet.
  • Iron ore remains the single key driver of Rio Tinto’s financial performance. Production at the key operations of Pilbara and Hamersley increased. With current commodity prices the company is likely to try to increase capacity at both iron ore and (new) copper operations as fast as possible.

©2011 | Wilfred Visser | thebusinessofmining.com

Itochu beats rivals to $1.5bln Drummond deal

June 17, 2011 Comments off

“Itochu, the Japanese trading house, has beaten global commodities and mining rivals, including Glencore and Xstrata, to secure a 20 per cent stake in Colombian coal assets owned by Drummond, a family owned US mining company, for $1.52bn. The deal, announced on Thursday, is the clearest sign of the renewed appetite among Japanese traders for thermal coal, the commodity used to fire power stations, as the post-tsunami nuclear crisis threatens the future of electricity generation in the country.

The transaction values the assets at $7.6bn, well above the $6bn that other bidders were prepared to pay, highlighting the rapid appreciation of coal assets driven by strong demand from Asia. China and India have joined traditional buyers such as Japan and South Korea in competing for supplies, which has driven up prices. Berlin’s decision to phase out nuclear power in Germany could also boost demand in Europe. Drummond said that the transaction would give Itochu “rights” to market coal produced in the Colombian mine into Japan.”

Source: Financial Times, June 16 2011

Observations:

  • Last November Glencore was reported to be interested in buying Drummond’s Colombian assets: Mina Pribbenow and El Descanso open-pit coal mines located in the Cesar Coal Basin near La Loma; Puerto Drummond, a deep-water ocean port on the Caribbean Sea near Santa Marta; and coal transportation and handling facilities.
  • Itochu, a Fortune 500 trading company with approx. $150bln annual revenues, hopes to benefit from high prices for steam coal in Japan. It will get the rights to market coal from the Colombian assets, which will still be operated by Drummond, in Japan. Drummond will use the funds from the sale of the 20% ownership of the assets to increase the capacity of the mines.

Implications:

  • After the nuclear crisis in Japan the interest in coal fired power in the country has returned, increasing the market value of steam coal. Itochu is hoping to benefit from this trend in the long term, but will now also benefit from the profitability of the Colombian assets.
  • The ownership stake bought by Itochu does not prevent any other company from buying out Drummond and gain control over the assets. The sale of this stake gives a potential acquirer a clear valuation, which could help to bid for the remaining 80%. To Itochu this would not necessarily be an issue, as long as the contracts to market the coal in Japan are not changed.

©2011 | Wilfred Visser | thebusinessofmining.com

Indonesia’s Indika to Expand Coal-Mining Capacity

June 15, 2011 Comments off

“Coal miner PT Indika Energy will expand capacity at least 25% in the next three years to meet the growing demand for fuel in expanding Asian economies, the company’s chief executive said. Indika plans to boost the capacity of the mines it controls through PT Kideco Jaya Angung to 50 million metric tons in the next two to three years from 40 million tons, said Arsjad Rasjid, Indika’s CEO and president director. The company hopes to lift capacity at least in part through acquisition.

The Jakarta-based company, which had revenue of around $440 million last year, is seeking to keep up with rising demand for thermal coal to fuel the power plants of India, China and in Indonesia. Indika is Indonesia’s third-largest coal miner, behind PT Adaro Energy and PT Bumi Resources.”

Source: Wall Street Journal, June 14 2011

Observations:

  • Indonesia is located close to China and India, both of which depend on thermal coal imports. At the same time the economic development in Indonesia (with over 240 million inhabitants) is driving the domestic demand. As a result the coal mining sector in the country is recently getting strong international attention.
  • The Indonesian coal mining industry was strongly reshuffled last year after Vallar combined the assets of domestic champions Bakrie and Bumi. Part of the this deal, which results in a FTSE-listed Bumi plc., is executed this week by Vallar issuing convertible bonds to Bumi resources.
  • Coal India is also looking to invest in Indonesian coal mines, using part of the funds raised through last year’s IPO, which had the company enter the global mining top 10 in terms of market capitalization.

Implications:

  • Indonesian coal reserves are rather small compared to Chinese and Indian reserves. With the strong rise of domestic demand it is foreseen that Indonesian exports are not going to be much higher than current levels. However, as most of the reserves are located on the island Kalimantan and demand is mainly on Java and Sumatra export facilities will be built anyway, linking the Indonesian market to the global seaborne coal market.
  • Indonesian government is trying to find a balance in regulating production and exports, looking at the conflicting perspectives of energy requirements for own development and income from coal exports. High export tariffs and/or production caps could possibly hurt the international investors.

©2011 | Wilfred Visser | thebusinessofmining.com

India in race to snap up coal assets

June 7, 2011 Comments off

“From the mining belts of Queensland, Australia, to East Kalimantan in Indonesia, Indian companies are racing to secure coal assets across the globe. Last year, Indian companies overtook those from China, Korea and Japan as the biggest Asian buyers of overseas coal assets. They were following their US counterparts in trying either to increase their exposure to coal at a time of high commodity prices or lock in fuel supplies for industries such as steelmaking.

Unable to guarantee access to supplies at home because of a mixture of bureaucracy, corruption, logistical and environmental issues, many Indian groups have been aggressively trying to buy assets in Indonesia and Australia. India signed $2.4bn of deals out of a global total of $16bn last year, according to Wood Mackenzie, the consultancy. Meanwhile, Indonesia’s coal association has said it expects India to surpass Japan as the leading buyer of the country’s coal.”

Source: Financial Times, June 6 2011

Observations:

  • According to Ernst & Young’s analysis of M&A in the mining industry over 2010 India has risen to the 7th place worldwide with $5.5bln overall acquisitions in the industry. A large part of India’s acquisitions are aimed at coal mines and transportation infrastructure.
  • Most Indian acquirers of coal assets are private utility-linked companies, which are mainly interested in thermal or energy coal assets.

Implications:

  • The gold-rush mentality of many new players and the resulting high premiums paid for coal assets will help the industry in India consolidate, as the more sophisticated players will soon outperform the players that pay too much for access to resources.
  • The Indian government is trying to mobilize state controlled companies to participate in the bidding for overseas coal assets. The creation of the ICVL consortium and the IPO of Coal India are aimed to create more coordination in government efforts.

©2011 | Wilfred Visser | thebusinessofmining.com

Coal India in Talks to Buy Stake in Indonesian Mines

May 27, 2011 Comments off

“Coal India, the world’s largest coal producer, may submit a final bid by the end of June to buy a stake in Indonesia’s PT Golden Energy Mines, a person with direct knowledge of the matter said. The state-run coal monopoly is currently doing due diligence of Golden Energy, said the person who declined to be named. Coal India brought out its initial public offer last year. ‘It is not a controlling stake,’ the person said, and didn’t provide more details. He said Coal India is yet to decide on a valuation for the stake it plans to purchase as a proposal is yet to be placed before the company’s board. ‘There are various proposals in countries like Indonesia, Australia, U.S., which Coal India keeps on evaluating,’ the person said.

Coal India, which contributes to more than 80% of the country’s coal needs, faces several obstacles in augmenting its output such as delays in environment clearances. To meet rising demand from consumers, mainly in the power sector, the company has been scouting for mining assets overseas. More than half of India’s power-generation capacity of 174.36 gigawatts is based on thermal coal. The country aims to add 163 GW of capacity in the decade through March 2017 and a major portion of the new capacity would also be dependent on fossil fuel. India, the world’s second-fastest growing economy in the world, faces shortage of coal as environmental concerns have delayed approvals for local mining, hurting production. The country is facing a shortage of 142 million tons of coal for the current year. Local production of coal is expected to be 554 million tons against demand for 696 million tons, according to government estimates.”

Source: Wall Street Journal, May 26 2011

Observations:

  • The rumors about a potential acquisition by Coal India were spread around the time of announcement of quarterly results. The company posted net income for the quarter of over $900mln.
  • A small part of the company was sold in an IPO last year, providing several billions of dollars to be used in overseas acquisitions and domestic expansion to fuel Indian demand for thermal coal. The government projects a shortfall over the next year of approx. 140mln tons, roughly a third of the total Coal India production for the year.

Implications:

  • Stepping up mine production in India is mainly hindered by slow environmental permitting processes. Part of the problem lies with the government’s inefficiency in running the permitting process, the other part of the problem lies with Coal India and other miners in the country that have not yet adapted to the increasing stringency of regulation.
  • Indonesia is growing into an important coal supplier to both India and China. The acquisition of Vallar of a series of assets and participations to form Bumi plc is just one example of the rising importance of the country. However, just as in India the environmental and social regulations in Indonesia are being strengthened, which might slow down the development of coal production in the country.

©2011 | Wilfred Visser | thebusinessofmining.com

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