PERTH, Sept 5 (Reuters) - Tumbling coal prices and tough
financing threaten to derail tens of billions of dollars of
planned investment in Australia's Galilee Basin, a so-far
untapped reserve with the potential to make the country the
world's top thermal coal exporter.
Emboldened by record coal prices in recent years, Australian
mining magnates have teamed up with Chinese and Indian groups
such as GVK Power and Infrastructure Ltd and Adani
Enterprises to develop huge mines in Galilee, a remote
outback area in Queensland state.
They had big plans: five developments to ramp up production
to more than 180 million tonnes by the end of the decade, double
Australia's current annual thermal coal exports. In addition,
rail lines and ports to ship the coal, mostly to Asia.
But efforts to open up Galilee have been shaken by a 20
percent slide in Australian benchmark coal prices since the
start of 2012 to just over $90 per tonne, as China's demand has
Delays will mean Australia will miss out on overtaking
Indonesia as the world's No.1 thermal coal exporter and wipe out
a big chunk of future coal supply. They will also fan fears that
the decade-long resources boom that has helped Australia escape
recession in recent years is over, even with a $270 billion
resource investment pipeline already in the works.
Bandanna Energy, which has plans for mines in
Galilee, concedes the new mining frontier is dead for now.
"Galilee Basin will have its time, thanks to rising China
demand, but not in the next four to five years -- definitely,"
Michael Gray, the managing director of Bandanna Energy, told a
recent coal conference in Queensland.
Bandanna, with partner AMCI Capital, plans to produce up to
20 million tonnes of coal from its South Galilee Project and had
targeted 2015 as the start date for its mine, according to
Australia's Bureau of Resources and Energy Economics.
Firms involved in Galilee already faced a tough environment
to raise funds, exacerbated by Europe's debt problems and now
made even harder now by the fall in coal prices.
Coal is Australia's second-largest export earner behind iron
ore, worth about A$47 billion ($48.10 billion) in 2011, with
A$15.6 billion from exports of thermal coal for power stations.
The Galilee plans include the roughly $10 billion Alpha Coal
project run by Hancock Coal, a joint venture between India's GVK
Power and Infrastructure and Australia's richest person Gina
Rinehart. The project is regarded as the front runner to develop
and is due to begin production in 2015.
Adani Enterprises plans to start digging its $10 billion
Carmichael coal mine in mid-2013, but industry sources say it
has little chance of meeting its 2014 production target date.
Adani was not immediately available for comment.
Australian mining magnate Clive Palmer's Waratah Coal is
backing the $8 billion China First Coal project, due to begin
exports in December, 2014, but also facing obstacles.
Palmer's Resourcehouse failed in its fourth attempt to raise
billions from investors to develop China First when it tried to
list on the Hong Kong stock exchange last year.
"The key question today is how to attract capital. With the
European situation, money is scarce," said Mike Roche, chief
executive of the Queensland Resources Council, an industry body.
In the current environment, even projects not requiring
infrastructure such as rail and ports are under threat.
BHP Billiton earlier this month indefinitely
delayed the planned $20 billion-plus Olympic Dam copper
expansion in South Australia.
BHP, Rio Tinto and Xstrata, top producers
of sea-borne thermal coal, have all cut staff or contractors.
Adding to doubts over Galilee, in May a proposal to expand
Queensland's Abbot Point coal port, which all five Galilee
projects plan to use, was scaled back by the state government
because it was "unrealistic and undeliverable."
ASIA NEEDS THE HEAT
Not all Galilee developments, especially those underwritten
by firms based in coal-hungry China, should be written off
though, particularly given future coal requirements.
"There is still going to be a huge amount of thermal coal
required over the next 10 to 15 or 20 years, it's got to come
from somewhere," said Mark Pervan, head of commodities research
at ANZ Research in Melbourne
Mining tycoon Palmer, whose Waratah Coal firm is building
the China First mine, shrugs off the downturn in coal prices.
"It's not about the price for coal. Our partners are about
getting the coal because they need the heat," said Palmer.
GVK, with more than 60 million tonnes of coal production in
the pipeline, also believes it will be able to sell all its coal
and says it has 43 letters of intent with customers.
"We are very confident of the project's viability with
strong global investor support, a full order book, favourable
consistent geology, robust low operating costs," GVK Coal's
managing director, Paul Mulder, said in an email to Reuters.
"Potential investors in the mine, rail and port are in
advanced discussions with our company," Mulder said.
Still, with capital costs for Australian resource projects
sky high after years of boom, some believe now may be the time
to be prudent on developing projects such as Galilee.
"Is it better to wait to let capex come down perhaps and the
picture of demand to firm up a bit? Yes I think so," said Andrew
Harrington, an analyst with Patersons Securities in Sydney.