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Exclusive: Goldman front-runner for Vale's Colombian coal ops
BOGOTA/LONDON (Reuters) - Goldman Sachs is the front-runner in an auction to buy the Colombian coal assets of Brazil's Vale, attempting to achieve strategic port access, while Glencore waits in the wings and rival traders stay away, industry sources familiar with the matter said.
Coal mines in the past few years have attracted almost frenzied M&A interest, particularly from traders seeking to become vertically integrated and Asian consumers such as India and China, but buyers are becoming more choosy, focusing on large, low-cost mines with big reserves.
Frontrunner Goldman Sachs (GS.N) is attracted to the Vale assets partly because it does not have its own port and pays for usage of the Carbosan port and Vale's harbor, the sources said.
Getting access to the port would be a key reason for Goldman Sachs -- one of the bigger banks active in coal trading -- to buy along with doubling the firm's capacity on the private Fenoco railway to 7 million tons by adding Vale's share, they said.
Vale (VALE5.SA) -- which paid $306 million in 2008 for the mines, railway and port -- has struggled to drum up much interest in the assets because its price expectations -- which were to at least match what they paid -- were too high, the sources said.
"Goldman Sachs looks the most likely to buy it, they probably will if they over pay, as Vale did originally," one senior industry source told Reuters.
The Vale auction process is expected to finish by the end of February, the sources said. Vale executives said in December that they hoped the sale would be agreed early in 2012.
"Vale closes (the process) soon. Goldman Sachs is in there. They're very interested," said a source close to the companies.
Vale is selling its Colombian assets because they are relatively small and high-cost mines versus the large operations of Cerrejon, Drummond DRMND.UL and Glencore (GLEN.L) and they are not core assets for Vale's business.
Map of the railway: r.reuters.com/rad66s
Graphic on Colombian output, exports: r.reuters.com/cyq87r
Vale's reserves are too small and made up of mostly low quality coal to justify a price tag of $300 million, said sources who have looked at the Vale assets.
"The reserves are fairly poor and not large by any means," another industry source said.
The most logical candidates to buy Vale's assets would be Goldman Sachs affiliate Colombian Natural Resources, Glencore's Prodeco unit or Drummond, which all have mines nearby and use the same railway as Vale to transport coal.
The three major miners - Cerrejon, Drummond and Glencore - account the bulk of Colombian coal exports and each have their own ports, access to rail and open-pit mining operations.
SOME COMPANIES STAY AWAY
Opportunities to break into coal mining are still rare in most key exporting countries such as Colombia, which has drawn intense interest over the last decade thanks to better security, coveted coal quality and a strong outlook on global prices.
Lack of infrastructure is one of the main worries for coal players trying to buy thermal and metallurgical coal and mines in Colombia - making Vale's operations with their rail and port capacity more attractive.
Reuters was first to report that Vale was selling its 3-million-tonnes-a-year Colombian coal operations in November.
Credit Suisse is advising on the sale - the bank was one of the consultants when Vale originally purchased the assets in 2008, the sources said.
Both Goldman Sachs and Glencore declined to comment. Vale did not immediately respond to requests for comment.
The large-stripping ratio at Vale's mine and the need to invest money in the port to make it direct loading as required by Colombian law are also affecting the sale, the sources said.
Drummond, which mines coal nearby and has a share in the Fenoco rail line, was not interested, they said.
Major traders such as Mercuria, Trafigura and Vitol are not in the process, sources close to the companies said, while world commodity-trading powerhouse Glencore has looked at the assets but did not put in a bid.
Right now, Glencore has its hands busy with the mining sector's biggest deal to date -- a colossal $90 billion recommended all-share deal with Xstrata.
If the Vale auction fails, however, Glencore is seen as the next likely buyer - if the price is right - which would give it more capacity, stop competitors from getting a foothold in Colombia and its Prodeco operations in the area could absorb the assets fairly easily, the sources said.
"I'm sure they'd (Glencore) love to buy it and it would make perfect sense for them to do so, but they'll never over pay, they'll be watching developments," another senior industry source said.
(Reporting by Jack Kimball in Bogota and Jacqueline Cowhig in London; editing by Jim Marshall)
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