The Strategist

Goldman Sachs to Sell its Coal Assets

05/06/2015 - 15:18

US bank Goldman Sachs is negotiating the sale of coal assets, writes The Wall Street Journal, citing informed sources.

The reasons for sale are protests of workers, the law on the environment, the decline in world prices for coal, as well as the norms according to which the investment banks cannot exceed a certain quota. Due to these factors, the coal business in Colombia cannot even self-sustain.

This investment bank has already got rid of its aluminum smelter and power networks, thereby saying goodbye to the commodity assets. Nevertheless, Goldman intends to continue to trade with raw materials and related financial instruments. The scope of investment proposals to customers in the field of extraction of raw materials fell sharply in 2009. Revenue on such investment proposals fell from $ 4.9 billion in 2009 to $ 1.5 billion in 2013.

The bank bought the first coal mine in Colombia - La Francia - in 2010 from the Canadian Coalcorp Mining for $ 161 million. Goldman Sachs acquired the second mine in the country last year from Brazil's Vale SA, together with the railway for $ 407 million.

These coal assets were merged into Colombia Natural Resources division.

In 2010, La Francia’s revenue was $ 66 million, next year it tripled, reaching $ 200 million. However, due to problems with the local people because of the pollution of the environment, the bank was forced to pay more than $ 1 million. In addition, the reduction in demand for coal caused the fall revenue in 2013 to $ 70 million.

Coal prices have fallen by 20% over the past three years, according to the article.

Despite the fact that the US Federal Reserve is taking measures to restrict the activities of commercial banks in the field of production, storage and trade of commodities, Goldman Sachs’ management said that the raw material is an important business for the bank. It plans to continue to trade in commodities and related financial instruments, as well as provide customers with services for temporary storage.

The revenue from Goldman Sachs’ commodity business in 2013 was about $ 1.5 billion, down from about $ 3.4 billion in 2009.

Earlier in March, Bloomberg, citing data of Coalition research firm, reported that Goldman Sachs came in first place among the 10 largest investment banks of the world in terms of revenue from trading commodities in 2014.

JPMorgan Chase, having won the first place on this indicator in 2013, dropped to second place last year. The third position was taken by Morgan Stanley.

Bloomberg Commodity Index, the calculation of which includes 22 commodities quotes fell by 17% in 2014. The indicator has fallen for the fourth year in a row, including due to lower oil prices.

Goldman Sachs revenue from transactions with raw materials in the past year increased by 9% - to $ 4.9 billion, according to the Coalition.

JPMorgan last year sold part of its commodity business to Swiss trader Mercuria Energy, specializing in trade in the energy markets. At the same time, the Bank continues to provide services and sell products related to commodity markets.

JPMorgan last year shared the first place with Citigroup in terms of revenue from transactions with debt instruments, currencies and commodities, noted in the Coalition. Deutsche Bank took the following positions on this indicator.