(Adds analysts’ comments, industry context)
TOKYO, Oct 1 (Reuters) - Japanese trading house Marubeni Corp is preparing to sell a costly stake in a Canada coal mine for what the potential buyer says could be as little as $1, the day after a Tokyo rival said it will book losses from investments in coal and iron ore that soured as prices fell.
Hong Kong-listed Up Energy Development Group Ltd said in a statement on Tuesday that it has entered into a non-binding memorandum of understanding with the Japanese company for the sale of its just under 40 percent share of the Grande Cache mine in Alberta. Marubeni is prepared to accept the sum of $1 for the stake, Up Energy said.
Marubeni said in a short statement that it had signed a non-binding MoU with Up Energy for the sale of its 39.996 percent stake in the mine. It didn’t disclose financial terms.
The Japanese company and Winsway Enterprises Holdings jointly paid about $1 billion for the mine in 2012, according to Thomson Reuters data, with its Hong Kong-based partner holding almost all of the stake not owned by Marubeni. Marubeni hasn’t publicly disclosed how much it paid for its stake in Grande Cache.
“The asset is set to be sold for close to nothing by Marubeni and, while it will cause them to book a loss, they will be able to absorb it,” said a Tokyo-based analyst who covers trading houses and requested anonymity due to the sensitivity of the issue.
A Marubeni spokesman said the company couldn’t comment on the transaction further, other than to say Marubeni’s forecast for net profit of 220 billion yen ($2 billion) for the year through March remains unchanged.
The Japanese company has the right to buy back a 15.78 percent stake in the mine within three years of completion of a final agreement on the sale, Up Energy said. In a separate statement, Up Energy said it had entered a non-binding MoU with Winsway to buy a stake of almost 43 percent in Grande Cache, with similar terms to the Marubeni agreement.
Marubeni shares fell 0.25 percent on Wednesday after it released the statement on the sale to Up Energy.
Sumitomo Corp on Monday slashed its annual profit forecast by 96 percent because of impairment losses on shale, coal and iron assets, prompting a sell-off in the shares of other trading companies’ shares on Tuesday. Sumitomo fell the most in 18 years.
“Many coal mines that Japanese trading companies have stakes in are making losses and production plans are behind schedule, posing the risk of fresh or additional impairment losses,” Jiro Iokibe, a senior analyst at Daiwa Securities, told Reuters on Tuesday.
Sumitomo said on Monday it and partner Vale SA will shut down their Isaac Plains coal mine in Queensland, Australia by the end of January next year because of the slump in coal prices.
Prices of both coking coal, used mostly in blast furnaces to smelt iron ore for steel production, and thermal coal, used in power generation, are down dramatically from peaks in 2008. In 2014 alone, prices have dropped roughly 15 percent.
The Grand Cache mine had 154 million tonnes of marketable coal reserves at the end of 2013 and supplies customers in Asia with coking coal, according to the Up Energy statement. (1 US dollar = 109.7700 Japanese yen) (Reporting by Yuka Obayashi and James Topham; Editing by Aaron Sheldrick and Kenneth Maxwell)