Global Business plans to buy coal mines

By Miguel R. Camus, BusinessMirror

Posted at Aug 22 2012 08:02 AM | Updated as of Aug 22 2012 04:08 PM

MANILA, Philippines - Global Business Power Corp., a unit of Ty-led GT Capital Holdings Inc., may acquire coal mines in the Philippines or Indonesia. This is part of the company’s long-term strategy to secure part of its supply requirements amid plans to build more power plants.

Global Business Power chief finance officer Jaime Azurin said in a recent interview that the company will invest in coal mining companies “if an interesting opportunity comes up” but clarified that there are no talks at the moment.

“As you expand capacity, it is important to have a source. It will be good to have your own coal supply— at least 30 percent [of required supply] and it’s better if you partly own the company,” he said. “We are open to looking at Indonesia or the Philippines for acquisitions.”

He said investments will likely be undertaken with a partner with expertise in the sector.

“We are not a mining company so we are not going to do it on our own. It has to be with a strategic partner,” Azurin said.

While declining to commit to a specific deadline, the company executive “hopes” Global Business Power can formalize an investment in coal in two years.

“Right now coal prices have been going down and we think it will continue to go down. When it hits rock bottom, that will be a good time to invest,” he added, referring to the decline in coal prices in the first half on worries about China’s slowing growth.

Azurin said challenges remain when it comes to implementation despite successful cases of integration in the country’s power sector.

An example of forward integration is when Consunji-led Semirara Mining Corp., the country’s biggest coal producer, acquired and rehabilitated the Calaca coal plant in Batangas three years ago.

What Global Business Power is planning is a “backward integration” strategy which, Azurin said, is more difficult. “It’s easier to do forward integration. For us, we need to find a mine that complies with our coal requirements.”

The diversification plan comes as Global Business Power eyes between 200 megawatts (MW) to 300 MW of new capacity from coal and hydropower sources in three to five years to increase its portfolio to about 1,000 MW, Azurin said. Its existing capacity of 633 MW mainly comes from coal-fired and diesel power facilities serving the Visayas market.

With new plants, the company hopes to enter Luzon. This will allow it to compete with major power companies like First Gen Corp., Aboitiz Power Corp. and San Miguel Corp.

The power sector, favored for its defensive nature, is also drawing new players like Ayala Corp. and Filinvest Development Corp.

Azurin reiterated that the company is considering an initial public offering help raise funds for greenfield projects. No timetable has been set as this will depend on how soon they can close new deals, he said.

New power projects are typically funded by a combination of 70-percent debt and 30-percent equity, Azurin said. An industry estimate sets a budget of $3 million per MW for renewable sources and $2.5 million per MW for traditional sources like coal.