Reuters reported that sales of coal mines across the globe will quicken now that end users and traders, particularly from India, rush to buy before prices start to turn higher.
Analysts and companies chasing coal assets said that the bonanza of coal mine sales forecast early this year failed to materialize because prices did not drop as sharply as buyers hoped.
Mr Peter Doyle head of European Coal Consulting firm Wood Mackenzie said that "Towards the end of this year and 2010 I think you'll see more deals done. On the M&A front I think the market has remained relatively subdued, perhaps buoyed by seaborne coal prices not sinking as low as some had forecast."
Mr Tim Williams director in mining and metals Ernst & Young said that "Most people are coming round to the view that the worst is over and starting to plan for the future."
Analysts said that mining majors such as BHP Billiton are cash flush and expected to look more aggressively at buying assets. The value placed by sellers on coal mines has fallen by around 50% from USD 2 per tonne during the past 12 months based on proven reserves to USD 1, but this is still more than most buyers would accept.
One major coal trader said that "The prices asked for second and third rate mines are probably double, even now, what we'd think is reasonable. But it's now or never."
A source at an Indian company firmly on the acquisition trail said that "Even at USD 1 per tonne based on reserves this is expensive but if you take the view, which we do, that we must buy our own mines to secure long term supply then it is reasonable."
Indian end users of both coking coal and steam coal have been seeking mines. Jindal Group and TATA have invested in Africa, Indonesia and Australia. Chinese companies are investing all over Africa, although not at the pace expected.
An Indian trader trying to buy Indonesian mines said that "There are some high quality coal reserves left in Indonesia not owned by the major players but they are in Central Kalimantan a long way from any river, to move coal to the ports." He added that "And these are small scale. There's only low quality reserves left but the costs doesn't work into India."
Indian companies including Jindal, bought remote Indonesian mining concessions but these became loss makers when prices for their low energy content coal fell below cash costs.
Jindal Steel & Power part of the Jindal Group in July bought South Africa's Kiepersol mine.
Buyers said that they still hoped to find small to medium sized South African mines at the higher end of the cost curve which may struggle to survive at current prices. Failing that, some keen buyers said that they are looking for undeveloped Greenfield coal reserves in Africa which would take up to 10 years and huge investment before generating cash.
One would be buyer said that "If you take a longer term view and do expect another commodity boom in several years time, this kind of investment makes sense."
(Sourced from Reuters)
