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coal dreaming « Previous | |Next »
July 29, 2014

The spin is that coal is the future and that the boom is eternal. The reality is otherwise: low profits, declining demand, collapsed global prices. Despite this the federal government has approved Adani's giant Carmichael Coal Mine in the Galilee Basin in Queensland and associated rail link to the coast that it says will generate as much as $300 billion for the Australian economy and help lift 100 million Indian consumers out of poverty.

RoweDcoalslag.jpg David Rowe

Who are they kidding? The 60 million tonnes of coal a year from the Carmichael Coal Mine will push global coal prices down further, double the price of electricity for Indian consumers and is not financially viable, given the amount of infrastructure that needs to be built to get the coal mine operational. The Carmichael Coal Mine is a potentially stranded fossil fuel asset.

Adani's plans include clearing over 20,000ha of bushland to build the mine, six open cut pits and five underground mines with a total area of 28,000 hectares, a private railway and expanded port facilities, as well as pulling billions of litres of water every year from local rivers and aquifers.

These plans make no financial sense given coal mining is unprofitable in today’s tough market conditions. Adani needs $100 a ton but commodity prices are around $50 a ton due to excess supply, with the outlook for global prices to recover being quite low given declining Chinese demand for coal.

Presumably, Adani is waiting for a big uplift in the market environment for coal. They are dreaming.

| Posted by Gary Sauer-Thompson at 8:34 AM | | Comments (11)


Part of the reason why the Galilee Basin hasn’t been mined before now is its relative remoteness. It requires a new railway line and port expansions and an increase in coal carrier traffic through the Great Barrier Reef

Queensland = coal development

Won't the sheer size of the Carmichael mine, have a significant impact on groundwater levels and flow, streamflow dependent on groundwater, and sensitive springs in the Great Artesian Basin?

As usual you only think in the present and lack the ability to present a positive post on any subject.

Adani has signed a contract for a company to build the railway. This Korean company is taking an equity stake as part payment. This is a very good move for Adani because freight for coal mines is usually on a take or pay system. Which means the mine pays to move so much coal per year whether they move it or not.
Estimates of the amount of coal in Carmichael is up to 10 billion tons of thermal coal. So based on being able to shift 60 million tons a year to port it will take well into the next century to shift it. Yes the price of coal is down now but prices go up and down. Adani has deep pockets and has plenty of time.

It could be years before a sod is turned at the $16 billion Carmichael project 240 miles inland from the Pacific Ocean coast of the State of Queensland.

A key question is how the Carmichael project will be funded and whether it can make a profit, or simply break-even at the current coal price.

Les says:
"Adani has deep pockets and has plenty of time."

Adani has announced that the company planned to export its first coal to India in 2016.

My understanding is that the external debt of the Adani Group is around US$12 billion. So it is a very financially leveraged group of companies. And that's before funding the majority of the $10 billion to be invested in Australia.

The major new thermal coal projects in the Gallilee Basin are based on the flawed assumption on ever increasing Indian import coal demand. Is this the case?

The imported coal would need to be priced at double the wholesale price of India’s electricity, which categorically discredits the nonsense arguments that it might alleviate India’s energy poverty.

The two most advanced projects in the Galilee Coal Basin are GVK Hancock’s Alpha Coal project and the Adani Enterprises’ Carmichael Coal project. Including the associated rail and port infrastructure requirements, each of these two greenfield developments have a capital construction cost approaching A$10bn.

The huge scale, greenfield nature and foreign ownership of these two projects brings an almost unprecedented level of financial complexity and risk.

What is not factored into these projects is the global climate change implications of opening up one of the world’s largest undeveloped fossil fuel resources adds to the risk profile, not the least being the risk of creating stranded assets as and when the world gets serious about explicitly pricing in carbon emissions.

"A key question is how the Carmichael project will be funded "

Given the relatively highly geared profile of each of these two Indian conglomerates---- GVK Hancock’s Alpha and the Adani Enterprises’--- international financial institutions will almost definitely have to play a major role in the financing of these two projects.

Any one any one of of the Big 4 Australian banks (Commonwealth Bank, Westpac, ANZ Bank and National Australia Bank) are not capable of taking on the financial risks associated with such globally significant greenfield coal mining projects.

The Adani groups power business in india is making losses due to the high fuel cost, lower consumption of cheaper coal from its mines abroad and from Coal India, and higher interest expenses.

The question is whether they'd be able to manage their rising debt and finance cost. There is no guarantee that the power business will start adding to the group's profitability in the near future.

I wouldn't want to be a shareholder in the Adani Group---the company's stock has been losing its value.