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Private equity firms are lining up to take on the dirty -- and highly profitable -- assets being divested by publicly traded commodity producers as the world grapples to decarbonize.
In the latest example, private equity accounted for most of the 30 so-called western candidates that signed non-disclosure agreements in the sale of Vale’s Mozambique coal business, according to Luciano Siani Pires, head of strategy and business transformation at Rio de Janeiro-based Vale.
While Indian steel and power group Jindal eventually picked up those assets, the level of interest from private firms underscores the bright outlook for coal mines that have become toxic for listed companies amid the shift toward environmental, social and governance investing, Siani wrote in a LinkedIn post.
To be sure, much of the interest in Vale’s Mozambique assets may have been driven by metallurgical coal, which has a far less bleak longer-term outlook than the thermal variety. Still, as major producers like Vale, Anglo American and BHP Group exit fossil fuels, private equity is betting the green transition will take longer than expected, with coal and oil prices threatening to stay high in the coming years due to a lack of investment in new capacity.
“The ensuing combination of high commodity prices and low acquisition costs for unwelcome assets may provide these firms the bonanza of a lifetime,” Siani said.