Goldman Sachs Group is bowing out of the commodities business after nearly 35 years, selling the Colombian coal mining operation that was its last holding at a steep loss.
Pressure from regulators and investors since the 2008-09 global financial crisis, coupled with falling commodity prices over the past year, have prompted both Goldman and Morgan Stanley to dismantle their large commodities operations. Goldman had invested in physical commodity assets, including oil refineries, power plants and warehouses to store aluminum and copper, since 1981.
The sale of Colombia Natural Resources to Murray Energy Corp. “is the latest sign of how Wall Street banks are responding to pressure from U.S. regulators and disappointing returns as raw materials prices plunged,” Bloomberg said.
Goldman invested in two coal mines in Colombia in separate deals in 2010 and 2012, buying the La Francia mine from Coalcorp Mining of Canada for roughly $200 million and later another mine for $407 million from Vale SA, the Brazilian mining group.
According to The Wall Street Journal, Murray, the largest underground coal company in the U.S., is paying less than $10 million for the two mines, more than 184 million tons of coal reserves, a coal port facility, a stake in a railroad, 11 locomotives, 530 railcars, and other assets.
The WSJ said Goldman faced labor and environmental issues in Colombia, with the Colombian government ordering the firm and some competitors to relocate residents near the mines. Revenue sank to about $70 million in 2013 and, amid softening demand and shipping problems, the mines essentially stopped production.
In the U.S., meanwhile, the Federal Reserve has been working on a rule to rein in Wall Street ownership of commodity assets. Federal Reserve Governor Daniel Tarullo, who is leading the Fed’s regulatory efforts, questioned in March whether banks should be allowed to own such properties.
“They’re the sort of things that are very hard to get a risk-management handle on as a banking regulator,” he told a U.S. Senate Banking committee.