India Engineering Conglomerates GMR and L&T Raise their Solar Ambitions

14 Jan, 2012
Energy,Solar Energy

The Indian Solar Power has been one bright spot in the gloomy infrastructure and engineering sectors in 2011. With share prices crashing with growing corruption, land acquisition and financing problems, Solar Energy has surged in India thanks to government support and subsidies . While a number of Green Technology companies have started up to capitalize on the growing renewable energy trend, the established construction companies in India have not been far behind . While utilities like Tata Power, Adani, Reliance Power, NTPC have already built or are setting up power plants based on solar panels , L&T has become a major solar EPC players . L&T is now raising debt with a $100 million issue to fund its solar expansion plans .

The travails of Indian Infrastructure Stocks

India’s Infrastructure Sector which was considered the ideal play on India’s fast growing GDP and its huge infrastructure requirements long commanded nosebleed valuations.While realty stocks which are closely related to the infra ones had long collapsed after the GFC in 2008 ,the infrastructure stocks had retained their preeminence in the stock market rally.However end 2010 and 2011 has seen a vicious change in their fortunes.Stocks like IVRCL,IRB,Punj Lloyd,L&T,Gammon etc have seen their stock prices nosedive.The stocks have corrected far more than the broader market which has itself fallen more than 15% in  2011. The problems related to the infrastructure stocks are varied and they have converged for investors to totally lose confidence in this sector something akin to the realty sector

The GMR Group which has its fingers in a number of sectors has also managed to complete a 25 MW solar pv plant and is looking to set up more . Note other industrial groups particular Mahindra Solar One has also become very aggressive in the solar energy area. With multiple entries into the Indian solar industry, one can only hope that overcompetition does not make solar energy another instanace of the larger electricity industry which is going through a sever downturn.

It plans to grow the installed capacity to 100 mw from 25 now, said the company.GMR has also commissioned its first 25 Mw solar power project Gujarat with a total investment of Rs 360 crore.The project was awarded in October 2010 under the Gujarat SolarPolicy. Power from this plant will be supplied to Gujarat Urja Vikas Nigam Ltd on a 25 year Power Purchase Agreement under the Gujarat State Solar Policy.

GMR Energy is currently operating 808 MW of power projects and is in the process of executing another 7500 mw. “Out of this, 2500 MW capacity will become operational in 2012 through commissioning of Projects at Vemagiri in AP, Kamalanga in Orissa and Warora in Maharashtra,” the company said.

L&T Infra Raising $100 million in External Commercial Borrowings

L&T Infra Finance, a subsidiary of L&T Finance Holdings on Thursday said it has raised close to $ 100 million through the External Commercial Borrowing (ECB) route this fiscal, largely to fund solar power projects.“We have raised $ 100 million through ECB route so far this fiscal, mostly to fund solar power projects,” L&T Head Financial Services, Mr Shiva Rajaraman, told PTI.

Coal Stealing on Unprecedented Scale by Indian Mafia contributes to Indian Power Woes

9 Jan, 2012
Coal,Energy,Fossil Fuels

Coal Stealing and Pilferage by the Coal Mafia has always been done on a massive multi million dollar  scale. In the coal rich states of Jharkhand, Bihar, West Bengal and Chattisgarh, Stealing of Coal is a major illegal industry. Everyone knows about it and nothing is done  as most officials and politicians get a cut of the illegal gains. Corruption in  India is institutionalized as governing bodies remain weak and powerless. Despite India’s much touted growth story,all these needling problems have contributed towards the Indian GDP slowing down sharply. Unless governance is improved,its tough to see how India can achieve its potential.

Dreaded Dons openly operate and steal millions of dollars in coal every day in the Indian coal districts. Coal India which is the state owned monopoly producer of coal has openly acknowledged the fact.India is facing a power crisis due to inadequate production of coal and the Coal Stealing is contributing. Note the Uses of Coal are more than just power and this stolen coal is  diversified and sold to these companies. There are a number of small private companies who buy this illegal coal at lower than market prices. In fact the entire business model of some of these smaller cement,steel companies is built on pilfered coal.

Not only Coal,but other Fossil Fuels like Petrol, Diesel and Gas also have related Mafias stealing and making billions out of their illegal trade. These Mafias are so powerful that they think nothing of killing honest government officials who take them on.

India’s Fossil Fuel Subsidies have led to a massive growth of the petrol and diesel mafia in the country.India gives subsidies on diesel,kerosene and cooking gas through its state owned petro/gas companies like BPCL,IOCL,HPCL etc.These subsidies have been given for a long time and have led to the growth of a parallel black economy in these products.They not only lead to capital misallocation but also to the massive illegal profits for a few.It is a well known fact that all petroleum pump owners adulterate petroleum ( which power most of the cars) with subsdized diesel and kerosene.This massive racket earns millions of dollars (if not billions) for a network of company officials,pump owners,government bureaucrats and politicians.The mafia is so strong and powerful that it thinks  nothing of burning alive a senior police official.The racketeers are so rich and well connected that despite common knowledge nothing gets done about it.

List of major Indian Coal Companies

1) Coal India Limited (CIL)- The State Owned Giant Coal Producer dwarfs the other companies through its sheer size,scale,cost and reach.The company has fared poorly in the current year after its IPO as its production growth has almost come to Zero.However its sells coal at such a low cost,that it could easily raise prices of coal in select categories to meet its financial goals.One of the safest investments in the stock market.It posseses high level of cash,low valuation compared to global peers and has a huge room to raise coal prices in the future.

2) Neyveli Lignite Corporation is a PSU like NTPC and is also involved in lignite mining company in India. The company is mainly based out of the southern state of Tamil Nadu and mines some 24 million ton of lignite per year with an installed capacity of 2490 MW

3) Singareni Collieries Company Limited (SCCL) is a PSU  jointly owned by Andhra Pradesh and the Federal Governm .The company is involved in mining coal  in the GodavariValley region, with reserves of around 8 Billion Tons with production of around 50 million tons a year.Note listed currently still one of the major coal companies in India.

Adani Power to set up 140 MW Solar PV Capacity in India even as it looks to grow in Africa

4 Jan, 2012
Energy,Solar Energy

Adani Power,which is a leading Indian electricity company and part of the Adani Group is set to invest big money in the solar power in India.The company plans to set up 140 MW of energy capacity according to news reports with an investment of $600 million.Given the current costs of solar equipment and solar panels ,the price tag looks high at almost $3.5 million/MW when the current prices are more like $2 million/MW for large power plants in low cost locations like India.

Solar Panels can be bought in bulk for 90c/watt from high quality solar panel manufacturers around the world like Suntech,Trina and others.Adani Power like other power producers faces a torrid time as coal has become very difficult to get as Indonesia has imposed export duties on power.Adani Power which was in the race to become the biggest power utility in India is now looking to Africa to expand.The company which has all its capacity based on coal has to diversify to renewable energy given the CERC mandate to make India’s 15% Energy Generation.

Note the Adanis too followed the strategy of acquiring coal mines in Australia and Indonesia at high prices.Now these expensive M&A have become millstones as these countries have imposed conditionalities on export of coal which has made them very expensive to import.The price of imported coal is in fact so high that the companies can’t sell electricity at a profit.Read more below.

Another Coal Billion Dollar Acquisition as India’s Adani Group acquires Australian Coal Port Abbot Point

Coal M&A is picking up at a feverish pace as the demand and price of coal shoot through the roof.Note Coal is the cheapest fossil fuel and powers most of the world’s power plants despite its disadvantages.The abundance and cheapness of coal has managed to hide its deleterious effects.Indian and Chinese companies are gobbling up coal mines and companies globally as they rush to secure raw material for the growing thermal power plant capacity.Adani Power is part of Adani Group with capacity of 1980MW.The company currently operates India’s only supercritical power plant  in Gujarat. The company is currently implementing 16500 MW at different stages of construction..The company is currently implementing thermal projects of 3300MW at Maharashtra and 1320MW  at Rajasthan.

Australian,Indonesian,African Coal Mines Selling like Hot Cakes amongst Power Hungry Indian,Chinese Comanies

With domestic coal production rising at a snail’s pace,these companies are racing to secure coal supplies at whatever price they can get.Steel companies too are hungry for coal as it forms a major component of their product.Lanco Solar,Adani Power,Reliance Power,Tata Power,Tata Steel,Coal India have all bought or are in the process of buying coal mines and coal companies in foreign countries.Australian and Indonesian miners are minting top dollar as competition hots up with Rio and BHP Billtion also using thier massive cash hoard into play.Australian coal mining company Whitehaven Coal is the latest to put iself on the selling block with a price tag of more than $3 billion.More than 20 companies are set to be looking into entering the tendering process.

Earthquakes – The New Deadly Side Effect of Cheap Gas Production from Shale Formations

3 Jan, 2012
Gas

Shale Gas Technology has completely changed the Oil and Gas Picture in North America.Natural Gas prices have touched new low below $3/mmbtu as massive discoveries and production of shale gas has led to a glut.With the Technology being exported to other countries,it is expected that Natural Gas may take over from Coal as the preferred choice of electricity power generation.China and India are already taking out tenders for shale gas blocks.However Shale Gas has a nasty side effect which is normally not talked about.The cases have kept increasing though the mainstream media and the powerful oil lobby has tried its best to suppress it.The first one is water contamination which I had written about earlier

Shale Gas Water Contamination

Shale Gas which is a new form of Gas Extraction through Shale Gas Formation found deep under the Earth through Pressurized Injection of Water Mixed with Chemicals,is coming under Environmental Scrutiny.There have already been questions raised against theEnvironmental Safety of the Shale Gas Extraction Process.However the entry of Big Oil and Gas is preventing a fair and unbiased investigation into the harmful effects of Shale Gas.Note a NGO has accused the provincial officials and Gas Companies of illegaly using Water Supplies in Pennsylvania.The US Environmental Protection Agency (EPA) has deepened the probe into the process by asking 9 Exploration Firms to send Chemicals Data used in Shale Gas.

Earthquakes the New Danger

The digging of new injection wells which is used to dispose of water has been linked to earhquakes in Ohio.Note the biggest disadvantage of hydro power is that it can cause massive earthquakes due to movement of  large earth works.Shale Gas does the same in a  smaller way.The Technology is quite new and all the side effects are not known.Minor earthquakes near shale gas digging has been reported before as well.

Ohio Shuts Wells Following Quakes

Ohio became the latest state to take action on the possible link between seismic activity and wells used to dispose of waste water from oil and gas production when state officials ordered a halt to the practice near Youngstown this weekend after several minor earthquakes.

The wells, known as injection wells, have been proliferating in Ohio to accommodate growing volumes of waste water left over from hydraulic fracturing, which involves blasting water, sand and chemicals underground to break apart dense layers of rock to free up oil and gas.

Diversion of Water by Shale gas Companies is another bad effect of this new Natural Gas production.Pennsylvania is Ground Zero for Shale Gas Companies as it has the largest Shale Gas Formation in the world – Marcellus Formation.Large Number of Wells have been dug in the State using Millions of Tons of Water.This has come under the spotlight as it is not legal to draw water under the Clean Streams Act.Only communities adjacent to the rivers can use this water.An Environmental Group has also accused the state EPA of colluding with these corporate interests.
Read about the advantages and disadvantages of Natural Gas to examine the issue further

Cement Companies in India List – Lull after the Boom

7 Oct, 2011
Real Estate and Construction

CementIn the past ten years, cement consumption in India grew by approximately 7.5% per year. The building industry developed very dynamically, driven by the strong growth of population and the quick expansion of infrastructure. In 2005, India was after China the second largest cement consumer with around 135 million tonnes.India’s Construction Companies have enjoyed a massive boom times in the last 5 years but they too are facing rough times with the slowdown in investment,corruption charges and rise in interest rates.The

 

 

TYPES OF CEMENT

  1. Ordinary Portland cement is the most commonly used cement for a wide range of applications. These applications cover dry-lean mixes, general-purpose ready-mixes, and even high strength pre-cast and pre-stressed concrete.
  2. Bulk Cement, an alternative to bagged cement, which is of particular advantage to large consumers of cement. Internationally, the trend is to move cement more and more in loose form rather than bagged. In fact, over 90 percent cement in the USA, and other European countries is transported and sold in bulk, unlike in India, where only one percent is transported in bulk.
  3. Ready Mix Concrete, or RMX as it is popularly called, refers to concrete that is specifically manufactured for delivery to the customer’s construction site in a freshly mix and plastic or unhardened state.
  4. Portland blast-furnace slag cement contains up to 70 per cent of finely ground, granulated blast-furnace slag, a nonmetallic product consisting essentially of silicates and alumino-silicates of calcium.
  5. Portland pozzolana cement is ordinary portland cement blended with pozzolanic materials (power-station fly ash, burnt clays, ash from burnt plant material or silicious earths), either together or separately.

LIST OF TOP CEMENT COMPANIES IN INDIA

1) ACC Ltd. – Established in 1936, ACC Limited is India’s foremost cement manufacturer. Among the first companies in India to include commitment to environment protection as a corporate objective. ACC is now part of the worldwide Holcim Group. It is a trend-setter in cement and concrete technology. The company has a wide network of Sales Units, Area Offices, and warehouses. This is backed by a vast distribution network of over 9,000 dealers & sub-dealers. The company has supplied to some of India’s most admired projects. It is essentially a people’s brand of cement. Its customer base represents the masses of India – individual homebuilders in small towns, rural and semi-urban India. The net profit for the quarter ended June 2011 was around Rs.32K crores (unaudited). ACC manufactures the various kinds of Portland Cement for general construction and special applications.
ACC manufactures:
Ordinary Portland Cement – 43 & 53 grade cement
Bulk Cement – ACC Bulk
Blended cement – Fly-ash based Portland Pozzolana cement, Portland slag cement Ready Mix Concrete – ACC             Concrete
It is the only cement company that figures in the list of Consumer SuperBrands of India. The Net Profit for Quarter ended Sep 30, 2009 was Rs.41,550.89 lakhs.
2) ULTRATECH CEMENT – is a part of the Aditya Birla Group. The Aditya Birla Group is among the top ten cement producers globally. Ultratech cement was incorporated in 2000 as L&T Cement Ltd. The management control was acquired by Grasim in July 2004. Together with Grasim, it is one of the largest cement producers in India. The name of the company was changed to UltraTech Cement Limited with effect from 14 October 2004. The company’s Net Profit for the year 2008-09 was Rs. 97,700 lakhs. With an annual capacity of 52 million tonnes, the company manufactures and markets

  • Ordinary Portland Cement
  • Portland Blast Furnace Slag Cement
  • Portland Pozzalana Cement
  • Ready mix concrete (RMC).

The company exports over 2.5 million tonnes per annum, which is about 30 per cent of the country’s total exports. The company has eleven integrated plants, one white cement plant, one clinkerisation plant in UAE, fifteen grinding units out of which eleven are in India, two in UAE, one in Bahrain and Bangladesh each and and five terminals, four in India and one in Sri Lanka. It is India’s largest exporter of cement clinker. It’s subsidiaries include Dakshin Cements Limited, Harish Cements Limited, UltraTech Ceylinco (P) Limited and UltraTech Cement Middle East Investments Limited.
3) GUJARAT AMBUJA CEMENT Ltd. – popularly known as Ambuja Cement Ltd is amongst the largest players in Indian Cement industry. It manufactures & markets cement & clinker both for domestic demand & exports. 50% shares of the company are held by the world’s second largest cement producing company, HOLCIM. Ambuja Cement Ltd has an installed capacity of 25 million tons. The Net Profit for Quarter ended on Sep 30, 2009 was Rs.31,848 lakhs. It has five cement manufacturing plants along with eight grinding units in the country & subsidiaries located in India, Sri Lanka & Mauritius.
4) JK CEMENT – Founded in 1975, today, J. K. Cement Ltd. is one of the largest cement manufacturers in Northern India. It is the second largest white cement manufacturer in India by production capacity. The Net Profit of the company in 2008-09 was Rs.14,234.40 lakhs. The company produces:

  • Grey Cement
  • White Cement
  • JK Water proof is another product from JK Cements Ltd.
  • JK Wall Putty is a White Cement based putty for cement plastered walls and ceilings, used to fill the uneven surfaces of walls and concrete walls, which provides a smooth and strong finish.

While the grey cement is primarily sold in the northern India market, the white cement has demand in the export market including countries like South Africa, Nigeria, Singapore, Bahrain, Bangladesh, Sri Lanka, Kenya, Tanzania, UAE and Nepal. The Grey cement consists of Ordinary Portland Cement (53-grade, 43-grade and 33-grade) and Portland Pozzolana Cement. The cement products are marketed under the brand names J.K. Cement and Sarvashaktiman for OPC products, J.K. Super for PPC products and J.K. White and Camel for white cement products.
5 ) JAYPEE CEMENT – part of the JP Group which has a diversified business model and increasing market share in the cement business. JP Group is a real estate, power, construction conglomerate. The company’s listed subsidiary Jaypee Infratech is building a massive highway cum real estate development passing near the capital of India Noida. Jaypee Cement is the 3rd largest cement producer in the country. Its cement facilities are located in the Satna, U.P. The group produces special blend of Portland Pozzolana Cement under the brand name ‘Jaypee Cement’. Its cement division has an aggregate installed capacity of 26.20 MnTPA. The company is in the midst of capacity expansion of its cement business throughout the country with an expected increased capacity around 35.90 MnTPA by FY12.
6) CENTURY CEMENT – The installed capacity of Century Cement is 2.10 Million TPA. Apart from this, company has two more cement plants namely Maihar Cement at Sarlanagar, MP with an installed capacity of 3.80 Million TPA and Manikgarh Cement in Maharashtra with an installed capacity of 1.90 Million TPA. The combined Capacity of all cement plants taken altogether is 7.80 Million TPA. By Dec-2011 the group capacity will touch 8.5 MTPA. A Grinding Unit of 1.50 Million TPA at Sagar Dighi, WB is under erection and will be completed by Oct-2012. The group capacity by 2012-2013 will reach a new land mark of 12.8 MTPA. The company produces 100% blended cement – Portland Pozzolana Cement & Portland Slag Cement. The company sells its cement under the mega brand – Birla Gold.
7) INDIA CEMENTS – established in 1946 in Tamilnadu, the company has grown in to seven plants spread over Tamilnadu and Andhra Pradesh. The Company is the largest producer of cement in South India, with a market share 28%. The capacities as on March 2010 have reached 14.05 MTPA. The company’s Net Profit for 2008-09 was Rs.43,218 lakhs. The company manufactures:

  • Ordinary Portland Cement – 53 grade under the brand name of Coromandel King, Sankar Sakthi and Raasi Gold & 43 grade cement under the brand name of Coromandel, Sankar and Raasi. The production of 43 grade OPC is nearly 50% of the total production of cement in the country.
  • Blended Cement – Coromandel Super Power, Sankar Super Power and Raasi Super Power are the premium blended cements.
  • Sulphate Resisting Portland Cement – Sankar SRC
  • Ready Mix Concrete.

8) GRASIM CEMENT – Starting as a textiles manufacturer in 1948, today Grasim’s businesses comprise viscose staple fibre (VSF), cement, chemicals and textiles. Its core businesses are VSF and cement, which contribute to over 90 per cent of its revenues and operating profits. Grasim Cement is a flagship company of the Aditya Birla Group. The consolidated net profit (before extraordinary items) was Rs.27.6 billion (FY2010). In July 2004, Grasim acquired a majority stake and management control in UltraTech & has a capacity of 52 million TPA. As a part of the restructuring process, the cement business has been consolidated with its subsidiary UltraTech Cement Limited. Grasim’s cement operations through its subsidiary UltraTech, span the length and breadth of India, with 11 composite plants, 11split grinding units, five bulk terminals and 74 ready-mix concrete plants.
9) JK LAKSHMI CEMENT – is a part of the JK Group, which has a diversified business ranging from Tyres, Paper, Cement & Agri products (sugar). Its cement manufacturing facility located in Sirohi (Rajasthan) has an annual production capacity of 3.5 million tonnes. With a split location grinding unit at Kalol (Gujarat), the combined capacity of the Company today stands at 4.75 Mn MT per annum. JK Lakshmi has been a part of some of the nation’s important projects like IGNP, Sardar Sarvorar Dam and major corporations like L&T, Reliance, Essar and Airport Authority of India. The different types of cement manufactured are:

  • Blended Cement – JK Lakshmi Cement 53
  • Ordinary Portland Cement – 53 grade & 43 grade
  • Ready Mix Concrete
  • Plaster of Paris – JK Lakshmiplast.

BINANI CEMENT – Binani Cement Limited is the flagship subsidiary of Binani Industries Limited, representing the Braj Binani Group. The Braj Binani Group is a multidimensional business conglomerate, with a Net Global Asset Value of $521 million, Net Income of $ 603 million and a workforce of 1700 professionals. The Binani Group is a diversified, business house with interests in zinc, cement, glass fibre, composites, project management services, construction. The cement business started operations in 1997. The company has operations in India, China, Africa and Dubai. The annual capacity together with the split-grinding unit in India is around 6.25 MTPA. The manufacturing plant is situated in Sirohi, Rajasthan. The Company’s product portfolio includes:

  • Ordinary Portland Cement – 43 grade & 53 grade
  • Pozzolona Portland Cement and
  • Ground Granulated Blast furnace Slag

10) PRISM CEMENT – The production range includes cement, ready-mixed concrete, tiles, bath products to kitchens. It operates one of the largest single kiln cement plants in the country at Satna, Madhya Pradesh. Currently it sells over 3 MTPA of cement and clinker to markets of UP, MP and Bihar. It has proposed a cement capacity of 3.6 MTPA by 2010-2011. It is also in the process of setting up a 4.8 MTPA capacity cement plant in Andhra Pradesh by 2013-2014. This will take its overall capacity above 11 MTPA. It manufactures:

  • Portland Pozzollana Cement with the brand name ‘Champion’
  • Ordinary Portland Cement – 33 grade, 43 grade & 53 grade
  • Ready Mix Concrete

11) SHREE CEMENT – Shree is ranked among the top five cement manufacturing groups in the country and is the largest cement manufacturer in North India. The turnover of the company for 2010-11 was Rs. 3512 crores and net profit was Rs. 210 crores. The present cement capacity is 13.5 MT per annum. It’s various cement plants are located at Beawar, Ras, Khushkhera, Jobner and Suratgarh in Rajasthan and Laksar (Roorkee) in Uttarakhand. It enjoys the largest market share in Rajasthan, Delhi and Haryana. The popular brands under which the company sells its products are:

  • Shree Ultra – Shree Ultra OPC and Shree Ultra Jung Rodhak Cement
  • Bangur Cement
  • Rockstrong Cement – youngest brand from the Shree, sustaining highest year on year growth.

12) HEIDELBERG CEMENT – HeidelbergCement is the global market leader in aggregates and a prominent player in the fields of cement, concrete and other downstream activities. With a consolidated turnover of EUR 11.8 billion in 2010, HeidelbergCement is one of the world’s leading producers of building materials. The company employs around 53,400 people at 2,500 locations in more than 40 countries. The company made its entry in India through a joint venture with Indorama Cement Ltd, in Mumbai. Both the companies have a 50% stake each. The cement capacity is 750,000 tonnes. Indorama is the only producer of high quality slag cement on the Mumbai market. The product range includes ready-mixed concrete & concrete products.
13) MADRAS CEMENTS – Madras Cements Ltd is the flag ship company of Ramco Group. Ramco Supergrade is the most popular cement brand in South India. Madras Cement is the fifth largest cement producer in the country. Based in Chennai, it has a cement capacity of 10.49 MT per annum. The main product of the company is Portland Cement. The company also produces Ready Mix Concrete and Dry Mortar products. The Net Profit of the company for 2008-09 was Rs.49,081 lakhs.
14) BIRLA CEMENT -It  is a division of Birla Corporation Limited, which is a flagship company of the M.P. Birla Group. Birla Corporation Limited has products ranging from cement to jute goods, PVC floor covering, as well as auto trims & iron and steel castings. Birla Cement has seven plants, two each at Satna (M.P.), Chanderia (Rajasthan), Durgapur (W.B.) & Raebareli (U.P.). The Net Profit in the year 2008-09 was Rs.9,061 lakhs. The cement is marketed under the brand names of Birla Cement SAMRAT, Birla Cement KHAJURAHO, Birla Cement CHETAK and Birla Premium Cement. They manufacture varieties of cement like:

  • Ordinary Portland Cement – 43 & 53 grades, under the brand names of Birla Cement KHAJURAHO & Birla Cement CHETAK.
  • Portland Pozzolana Cement – under the brand name of Birla Cement SAMRAT.
  • Fly Ash – based PPC,
  • Low Alkali Portland Cement,
  • Portland Slag Cement – under the brand name of Birla Premium Cement & Birla Cement
  • Low Heat Cement and
  • Sulphate Resistant Cement.

Ordinary Portland cement

Investing in Coal a Great Idea (Think China,India) – US Coal Stocks,Market Vectors Coal ETF(KOL) Analysis

6 Jul, 2011
Coal

Coal is the biggest source of Energy for Electricity Production in the world and its use is expected to continue to grow to 44% of the Electricity Production by 2030 (IEA).Despite Coal having many dangerous disadvantages,its Advantages of cheapness and abundance have made it the Fossil Fuel of choice.With global reserves estimated to be around 200 years,it does not have the “peak oil” characteristics as well.Though not a Coal Fan,nonetheless Coal stocks are a great investment choice due to the fact of its growing demand which is outstripping supply.China and India are massively growing their electricity,steel and cement production which  requires billions of tons of coal.China consumers almost 45% of the global coal production while Indian demand is growing by leaps and demands as well.Indian Power Utilities are grabbing up Coal Mines in Africa,Australia and Asia to secure feedstock for their gigawatt thermal power plants.Despite its growing importance Coal does not have a lot of choice in terms of investment unlike Fossil Fuels like Oil and Gas.Here is a list of Coal Stocks which one can invest in  and the sole Coal ETF – Market Vectors Coal ETF (KOL).

List of Coal Stocks

US Coal Stocks

Peabody Energy Corporation (BTU) – Market Cap of $18.5 Billon.Peabody Energy Corporation is the largest Coal Company in the United States with operations both in USA and  other countries.The Company has equity interests in a wide variety of Coal Mines and Coal Related Companies.It owns majority interests in 28 coal mining operations located in the United States and Australia.The Company holds approximately nine billion tons of proven and probable coal reserves and more than 500,000 acres of surface property.

CONSOL Energy (CNX)  – One of the the biggest Coal Companies in  the US with a Market Cap of around $12 Billion.CONSOL Energy is not a pure play Coal Company rather it has equal interest in Gas and Coal.. The Company produces pipeline coalbed methane (CBM) gas from its coal properties in the Northern and the Central Appalachian basin, and oil and gas from properties in the Appalachian and Illinois Basins.During 2010, it had 13 mining complexes, including two 49% equity affiliates, all located in the United States. The Company had an estimated 4.4 billion tons of proven and probable reserves

Arch Coal ACI – Market Cap of $5.6 Billion .During the year ended December 31, 2009, the Company sold approximately 126.1 million tons of coal and  operated 19 active mines at 11 mining complexes located in the United States.  On October 1, 2009, the Company acquired Rio Tinto’s Jacobs Ranch mine with 345 million tons of coal reserves and integrated it into the Black Thunder mine.

Alpha Natural Resrouces (ANR) Market Cap of $7 Billion,Alpha Natural Resources  is a coal supplier in the United States. It operates 66 mines and 13 coal preparation plants in Northern and Central Appalachia and the Powder River Basin. During 2010, Alpha sold a total of 84.8 million tons of steam and metallurgical coal.

Walter Energy (WLT) - Market Cap of $7.5 Billion  primary business, the mining and exporting of hard coking coal for the steel industry.During 2010, the Underground Mining segment produced 6.7 million tons of metallurgical coal. Underground Mining also extracts methane gas, from the Blue Creek coal seam. Its natural gas business produces approximately 38 million cubic feet of gas daily from over 1,700 wells

Massey Energy (MEE) – Market Cap of $6.9 Billion.Massey Energy Company (Massey), incorporated in 1920, is a coal producer in the United States. At January 31, 2011, the Company operated 84 mines, including 66 underground mines  and 18 surface mines in West Virginia, Kentucky and Virginia. On April 19, 2010, the Company completed the acquisition of Cumberland Resources Corporation and certain affiliated entities (Cumberland). The Cumberland operations include primarily underground coal mines in Southwestern Virginia and Eastern Kentucky. The Company owns a majority interest in Coalsolv, LLC (Coalsolv).

Alliance Resource Partners (ARLP) has a Market Cap of around $3 Billion.It operates primarily to serve  United States utilities and industrial users. It operates nine underground mining complexes in Illinois, Indiana, Kentucky, Maryland, and West Virginia. At December 31, 2009, ARLP  had approximately 647.2 million tons of coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia and sold 25 million tons of coal.

Patriot Coal Corporation (PCX) has a market cap of $2.25 billion and produces coal in the eastern United States, with operations and coal reserves in Appalachia and the Illinois Basin. It is also a producer of metallurgical coal. The Company’s operations consist of 14 mining complexes which include company operated mines, contractor-operated mines and coal preparation facilities.During the year ended December 31, 2009, the Company sold 32.8 million tons of coal and  controls approximately 1.8 billion tons of probable coal reserves

International Coal Group (ICO) – - Market Cap of $2.2 Billion  is a producer of coal in Northern and Central Appalachia .As of December 31, 2009, the Company operated a total of 11 surface and 11 underground coal mines located in Kentucky, Maryland, Virginia, West Virginia and Illinois.The Company’s mines in Central Appalachia produced 10.1 million tons of coal in 2009, and the mines in Northern Appalachia produced 3.9 million tons of coal in 2009.

Oxford Resource Partners (OXF) has a market cap of around $550 million and produces coal from mines  in Ohio.Company produced 5.8 million tons of coal, including 0.4 million tons produced from the reserves it acquired in western Kentucky from Phoenix Coal and sold 6.3 million tons of coal.OCX controls 91.6 million tons of proven and probable coal reserves

James River (JRCC) – Market Cap of $900 million, James River Coal Company mines coal through six subsidiaries  located in eastern Kentucky and in southern Indiana. As of December 31, 2009, the Company’s six mining complexes included 14 underground mines, 10 surface mines and 10 preparation plants, five of which have integrated rail loadout facilities  As of December 31, 2009, it controlled approximately 271.1 million tons of  coal reserves. and  produced 9.8 million tons of coal

Coal Stocks Symbols

1 Arch Coal, Inc. ACI
2 Alpha Natural Resources, Inc. ANR
3 Peabody Energy Corporation BTU
4 CONSOL Energy Inc. CNX
5 Evergreen Energy Inc. EEE
6 Massey Energy Company MEE
7 Natural Resource Partners LP NRP
8 Penn Virginia Resources PVR
9 Walter Energy, Inc. WLT
10 Yanzhou coal mining Co. (ADR) YZC
11 International Coal Group, Inc. ICO
12 Penn Virginia GP Holdings, L.P. PVG
13 Patriot Coal Corporation PCX
14 Cloud Peak Energy Inc. CLD

Market Vectors Coal ETF (KOL) Analysis

Market Vectors KOL ETF provides a good well diversified way to invest in Coal which is seeing a massive upsurge in demand driven by India and China.Note KOL is the only listed Coal ETF with Assets under Management (AUM) of nearly $900 million.It invests mostly in large cap companies and has a global scope.For investors looking for individual stocks here is a list  of US Solar Companies and Stocks and Indian Coal Stocks.China with around 3 Billion Tons of Coal Consumption and India with another 500 million Tons depend on King Coal for majority of their Energy Needs.While China generates 80% of its Electricity from Coal,India generates around 65%.While both countries have Huge Reserves and Production of Coal,their voracious demand is leading to surging imports.These Imports are being sourced from countries like Australia,Canada and USA which are going through Coal Mining Booms.Ports are getting congested as Infrastructure failed to meet the growing coal needs of India and China..The Biggest Advantages of Coal its Abundance and  Cheapness of Coal has made it the Fossil Fuel of Choice for Electricity Companies building power plants in developing countries despite its Drawbacks.This has led to a fight to secure Coal Supplies through vertical integration into buying up of coal mines,building ports and railways to transport Coal.Though India too faces some environmental opposition,massive ultra mega power plants with capacity of 4000 MW are getting built by new Indian private utilities.

KOL ETF

Market Vectors Coal ETF (KOL), which was launched in January 2008.

KOL Composition

KOL  is composed of 40 coal stocks  with the Top 25 Holdings make up 93% of the weight of the ETF.The ETF has  5 holdings with weight greater than 5% and has a well diversified mix of geograhies from USA,China and Indonesia.KOL largely has large cap stocks which make up more than 80% of the market cap with Mid Caps at 17% and Small Caps at a miniscule 3%.

1) Coal Sectors form 100% of the ETF Market Cap – The ETF has 5 sectors of Coal Mining and Produciton,Coal Equipment,Coal Technology,Coal Power Generation and Coal Transportation.Not surprisingly Coal Mining forms 68% of the Market Cap while Coal Mining Equipment forms 16%.This makes sense as KOL is mainly a play on Coal as a Mineral .

2) Top 5 Companies form 40% of the ETF- The Top 5 Constituents of the ETF namely Peabody,Consol Energy,China ShenHua,Joy Global and Bucyrus form 40% of the ETF’s value.2

3) Valuation of the KOL is currently quite high - The P/E and P/B of the ETF at31x ad 4x is quite high and reflects the current bull run in Coal Stocks.It may not be an oppurtune time to invest in this ETF at the present time,however its a good long term buy because Coal compared to Oil is still quite cheap.Beside KOL has given astounding returns in 2009 and 2010 vastly outperforming S&P and the Energy Index

Despite the high valuation,KOL gives a very good dividend yield of around 2%.

4) KOL Cost is cheap– The ETF is charging a total expense of 0.6% of the Weekly Average Assets which is quite cheap.It allows an investor to invest in top quality Global Coal Stocks from different countries at a relatively low cost which makes it an ideal Coal Play.

 5) Stowe Coal Index – KOL follows the  The Stowe Coal Index which is a trademark of Stowe Global Indexes LLC and is licensed for use by Van Eck Associates Corporation in connection with Market Vectors Coal ETF (KOL).

Summary

KOL has managed to rectify most of its drawbacks since its inception when it held a large percentage of coal utilities like Huaneng and has become an ideal way to invest in Coal.Given the run up in commodity prices and the sharp surge in Coal prices,KOL valuation has increased quite dramatically rising more than 30% in 2010 after a 150% run up in 2009.This may not be the best time to get in,however the massive takeover fights and high valuation being given to Coal Assets may imply that KOL might not come down in price anytime soon.The growing energy needs of China and India make KOL one of the best ways to play this stock.It is an ideal investment tool for buying into higher Oil Prices as well.

Details of KOL Holdings

Company Ticker Shares Market Value % of net assets
Joy Global Inc JOYG US 754,524 $74,637,514.08 8.36%
China Shenhua Energy Co Ltd 1088 HK 15,729,908 $73,754,597.65 8.27%
Consol Energy Inc CNX US 1,391,943 $73,104,846.36 8.19%
Peabody Energy Corp BTU US 1,064,666 $72,514,401.26 8.13%
Bucyrus International Inc BUCY US 765,138 $69,971,870.10 7.84%
Walter Energy Inc WLT US 328,702 $46,402,861.34 5.20%
Bumi Resources Tbk PT BUMI IJ 112,752,500 $42,134,912.20 4.72%
Massey Energy Co MEE US 629,898 $41,989,000.68 4.71%
Alpha Natural Resources Inc ANR US 734,079 $41,915,910.90 4.70%
Yanzhou Coal Mining Co Ltd 1171 HK 11,027,961 $41,092,030.88 4.60%
Arch Coal Inc ACI US 1,024,996 $35,393,111.88 3.97%
China Coal Energy Co 1898 HK 25,880,095 $35,153,626.34 3.94%
Adaro Energy Tbk PT ADRO IJ 117,347,215 $31,088,715.90 3.48%
Exxaro Resources Ltd EXX SJ 1,110,674 $28,817,320.50 3.23%
Patriot Coal Corp PCX US 595,166 $15,611,204.18 1.75%
Fushan International Energy Group Ltd 639 HK 19,212,067 $14,787,805.75 1.66%
Tambang Batubara Bukit Asam Tbk PT PTBA IJ 5,270,000 $13,596,882.95 1.52%
International Coal Group Inc ICO US 1,146,584 $12,589,492.32 1.41%
MacArthur Coal Ltd MCC AU 950,974 $12,084,011.61 1.35%
Aquila Resources Ltd AQA AU 1,099,055 $11,191,265.96 1.25%
Indo Tambangraya Megah PT ITMG IJ 1,943,052 $11,160,935.36 1.25%
22 Whitehaven Coal Ltd WHC AU 1,432,014 $10,592,590.12 1.19%
23 Coal & Allied Industries Ltd CNA AU 79,797 $10,319,721.99 1.16%
24 Straits Asia Resources Ltd SAR SP 4,027,200 $8,743,562.03 0.98%
25 Cloud Peak Energy Inc CLD US 398,185 $8,660,523.75 0.97%
26 New Hope Corp Ltd NHC AU 1,497,136 $7,882,907.33 0.88%
27 SouthGobi Energy Resources Ltd 1878 HK 510,997 $7,434,747.03 0.83%
28 Hidili Industry International Developmen 1393 HK 6,304,307 $5,860,978.12 0.66%
29 White Energy Co Ltd WEC AU 1,590,286 $5,195,803.01 0.58%
30 Semirara Mining Corp SCC PM 896,152 $4,773,223.54 0.53%
31 Indika Energy Tbk PT INDY IJ 9,155,000 $4,373,953.81 0.49%
32 James River Coal Co JRCC US 181,724 $4,323,213.96 0.48%
33 Gloucester Coal Ltd GCL AU 318,392 $3,660,613.96 0.41%
34 COCKATOO COAL LTD COK AU 5,197,173 $2,832,707.41 0.32%
35 FreightCar America Inc RAIL US 78,058 $2,387,013.64 0.27%
36 Headwaters Inc HW US 395,652 $2,358,085.92 0.26%
37 Nippon Coke & Engineering Co Ltd 3315 JP 957,000 $1,785,432.86 0.20%
38 Net Other Assets / Cash 0 $870,630.06 0.10%
39 PUDA COAL INC PUDA US 127,241 $763,446.00 0.09%
40 Western Coal Corp WTN CN 43,470 $537,340.66 0.06%

Source – http://www.vaneck.com/funds/KOL.aspx

 

Indian Coal Stocks

1) Coal India Limited (CIL)- The State Owned Giant Coal Producer dwarfs the other companies through its sheer size,scale,cost and reach.The company has fared poorly in the current year after its IPO as its production growth has almost come to Zero.However its sells coal at such a low cost,that it could easily raise prices of coal in select categories to meet its financial goals.One of the safest investments in the stock market.It posseses high level of cash,low valuation compared to global peers and has a huge room to raise coal prices in the future.

2) Neyveli Lignite Corporation is a PSU like NTPC and is also involved in lignite mining company in India. The company is mainly based out of the southern state of Tamil Nadu and mines some 24 million ton of lignite per year with an installed capacity of 2490 MW

3) Singareni Collieries Company Limited (SCCL) is a PSU  jointly owned by Andhra Pradesh and the Federal Governm .The company is involved in mining coal  in the GodavariValley region, with reserves of around 8 Billion Tons with production of around 50 million tons a year.Note listed currently still one of the major coal companies in India.

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