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Why this Czech tycoon wants to buy our coal mines

AFR, Sept 26 2022                            Link to the original article

Little-known Czech outfit Sev.en Global Investments is in talks to buy coal mines in Australia to further broaden its portfolio in “traditional” mining and energy after snapping up the Vales Point coal power station in NSW and a potash project in Western Australia in a spending spree last week.

Alan Svoboda, chief executive of the family firm, said Sev.en saw good opportunities for investment in Australia, putting capital to use to buy assets that other investors and banks were turning their backs on but which it expected would be needed for many years to come.

It already owns 50 per cent of the InterGen business that has stakes in the Callide and Millmerran coal-fired power stations in Queensland.

Sev.en Global Investments CEO Alan Svoboda says the energy transition will take longer than many expect. 

“We believe that the energy transition will be taking longer and will be a little bit more complicated than some visionaries portray,” Mr Svoboda told The Australian Financial Review.

“And so, if nothing else, the traditional sources of power will still need to provide some reasonable backup throughout the transition.”

Sev.en is the largest privately held owner and operator of coal-fired power plants and their adjacent coal mines in the Czech Republic and also owns generators in the UK, and coal mines in the US.

“That gives us comfort that investing in these traditional assets is still a viable strategy,” said Mr Svoboda from his base in Prague.

“We will continue investing in these traditional assets as long as they are needed, and be their responsible owner and operator, and potentially phase them out as the transition will progress and replace them with these new technologies like batteries or solar power, so new projects get to benefit from the location of the previous assets.”

Mr Svoboda said Sev.en was involved in formal and informal processes to potentially buy metallurgical and thermal coal mines as it looks to further expand in Australia, where it is in the final stage of appointing a country manager.

“We are hungry to broaden our investment base in Australia; we find the country extremely investor-friendly and transparent, and supporting the type of industries that we believe we can be really successful in,” he said.

“We are looking at opportunities where maybe some of the institutional investors are more constrained than us, and the businesses require capital support, require some long-term commitment. I think that’s where we can be really best positioned to invest and help the business.”

The 1320-megawatt Vales Point generator is due to close in 2029 but still supplies about 11 per cent of NSW’s electricity and is underpinned by retail contracts with Shell Energy among others.

Neither Mr Svoboda or the sellers, Trevor St Baker and Brian Flannery, have revealed the price paid for the asset that the duo famously bought for $1 million in 2015 and which was revalued on their books at about $720 million two years later as coal prices surged.

Extend life of plant

But Mr St Baker suggested it was far from $700 million, while Mr Svoboda said that valuation had in any case been a book value, not a market value.

“I’m not sure that’s actually a right benchmark even back then,” he said.

The deal has triggered speculation that Sev.en may look to extend the life of Vales Point past 2029, especially as other owners of coal-fired power stations have elected to close plans early. A decision earlier this year by Origin to close its Eraring generator – at 2880MW the country’s biggest – as early as 2025 could in theory strengthen the case for keeping Vales Point open for longer.

Mr St Baker has also signalled he sees an ongoing need for Vales Point past 2029 given the state’s reliance on the plant to keep supplies reliable after the end of the decade, but opted to sell and redirect funds into his electric vehicle charging investments.

But Mr Svoboda said Sev.en had no plan to shut Vales Point earlier or later.

“We want to maintain the asset as fully operational,” he said. “And depending on the circumstances, the supply-demand situation evolving over time, we will take appropriate steps. And obviously, we will respect all the rules and regulations that will be imposed on such assets going forward.”

Limited options

The deal comes as corporates are coming under increasing pressure to walk away from fossil fuels, while banks are also running shy of lending to the sector. Mr Svoboda signalled the position of lenders was the key constraint on Sev.en’s investments rather than any conditions around carbon emissions.

“We are constrained that for such investments we have to use predominantly our own equity because banks are reluctant to finance acquisitions in these sectors,” he said.

“And obviously there are limited options for exit for us, so we are not a financial investor that would come in and look for quick money and then go out again; our investment strategy is long-term.”

He said Sev.en still required Foreign Investment Review Board approval for the acquisition but hoped to complete it in November.

FIRB approval has already been secured for the acquisition of bankrupt ASX-listed Salt Lake Potash, a deal that was concluded just days after the Vales Point agreement.

Mr Svoboda said though Sev.en had not previously owned potash assets, the commodity was global, like thermal and metallurgical coal, and a natural resource that required the same sort of mining expertise, logistics and distribution.

“We found that commodity also to be very attractive, very strategic, and that’s why we decided to broaden our investment scope,” he said. “[Salt Lake Potash] had to file for insolvency and we believe the project is still viable, and with some further capital injection it could be completed and put into operation.”

He also signalled some restructuring is likely at InterGen in Queensland, potentially involving Sev.en and 50 per cent partner China Huaneng Group each taking one generator in the two-plant portfolio, to take direct control and split their interests.

“That’s an idea we are considering; if that would materialise, obviously we would be able to combine that one asset with Vales Point and create an interesting base for us in terms of power generation on the east coast.”

Mr Svoboda said as the new owner of Vales Point’s Delta Electricity, Sev.en would also consider expanding in electricity retailing to business and commercial customers, and to continue with proposals for a large solar power plant at the site.