Coal assets in Latin America have caught the eye of Indian investors
As India strives for access to the raw materials it needs to fulfil its economic potential, its eyes look to be firmly on Latin America’s coal producers, with M&A activity likely in the coming year. Meanwhile, Latin America’s own steel manufacturers are also eyeing the continent’s coal producers to provide them with sufficient stocks of the raw material.
Part of the interest in the region’s coal stocks has been prompted simply by the fact that production is up, quite remarkably in some regions, with Colombia leading the way.
In 2011, the amount of coal produced in Columbia increased by 15.4 per cent to 58.8 million tonnes, according to Reuters. Exports, meanwhile, also rose, by an impressive 16 per cent to 79.2 million tonnes, demonstrating that almost all of the country’s stocks are exported. These stocks had traditionally gone to Europe and the US, but they are increasingly going to Asian markets, and particularly to India and China, which need coal for energy and for steel production.
The main producers in Colombia are large firms like Glencore, Cerrejon and Drummond. The region has attracted a boom in investment in its mine and oil sectors as a result of the area becoming safer. The US has funded a major crackdown on the illegally armed groups that have made it difficult to do business in Colombia for decades, leaving the way clear for foreign firms to take advantage of the country’s natural resources.
A mining expert who spoke to Reuters asserted that Colombian coal production will reach 97 million tonnes this year, while Reuters claims there could be more of the “frenzied M&A activity” in the coal mining sector in the year to come. It claims that Asian consumers are increasingly looking in Latin America and that large mines with notable reserves are mostly being targeted.
One of the Indian firms that has stated an interest in Latin American coal assets is the newly expanded Vedanta resources. Vedanta is currently in discussions to buy a stake in Hindustan Zinc and Balco from the Indian government. It hopes the deal will have gone through by the end of year.
Talking about the deal, Anil Agarwal, the chairman at Vedanta, said, “there has been a lot of value addition in both Hindustan Zinc and Balco after they were acquired by us. Talks with the government are progressing as expected as we hope to close the deal by the end of the year.”
The firm has revealed it is eager to buy up coal blocks in India when they open up for auction later in the year, but also have their eyes on Latin America’s coal reserves. Vedanta has developed significant expertise in the coal mining sector since its acquisition of Balco, as the deal included some active coal mines.
As for the interest from elsewhere in Latin America, steel giant Gerdau, which is largest steel producer in the continent, “is looking in a very decided fashion at coal supplies”, according to its executive vice-president, Osvaldo Schirmer. The firm is thought to be looking to increase coal production to supply the Mexican, Brazilian and US markets.
Any M&A activity in this sector would occur as part of the company’s massive $5.95 million investment scheme for the period between 2012 and 2016, which is also expected to involve the opening of steel rolling mills in Brazil, the US and, interestingly, India.