The race to open a $40 billion (R308bn) coal
region in Australia is being led by billionaires Gina Rinehart and Clive
Palmer. Victory depends on who wins approval to build a 500km railroad
to the coast.
Rinehart, 58, Asia-Pacific’s
richest woman, and Indian billionaire GV Krishna Reddy’s GVK Group are
developing a $10bn mine, rail and port project in the landlocked Galilee
Basin in northern Queensland state. Adani Enterprises, India’s biggest
coal importer, has a competing $6.8bn plan to build Australia’s largest
coal mine in the same area.
The proposed Galilee railroad will
allow Australia, already the second-largest shipper of coal for
utilities, to more than double exports as China and India compete for
supplies. Palmer’s China First has threatened an A$8 billion (R66bn)
lawsuit against a fourth rail proponent, QR National, the nation’s
largest coal train operator.
“There is enormous money to be
spent on connecting the mines to the port and everybody wants their own
solution,” Andrew Harrington, a resources analyst at Patersons
Securities in Sydney, said.
“There’s been strong tension
between the Hancocks and the Clive Palmers and Adanis about where the
line goes. And now QR National has come in as a fourth.”
Mining companies are being forced
to dig further inland to profit from the rising consumption in China and
India, the two fastest-growing major economies. China will account for
63 percent of the increase in global coal demand through 2016, the
International Energy Agency said in a December report.
Electricity
demand in Asia, excluding Japan, will triple by 2025, with thermal
coal remaining the main fuel for generation, according to Royal Bank of
Scotland. Australian thermal coal exports might rise 48 percent over
that period, the bank said.
Rinehart, whose $18bn fortune tops
Forbes Asia’s rich list, is set to become the world’s wealthiest woman
this year, surpassing Walmart’s Christy Walton. She has spent two
decades expanding assets inherited from her father, Lang Hancock, who
discovered mines that made Australia the world’s biggest iron ore
exporter. She now controls closely held Hancock Prospecting.
Palmer, 57, is the fifth-richest
Australian, worth A$5.05bn, BRW magazine said in May. He amassed his
first fortune in real estate before moving into resources. In 2010, he
rewarded workers at his Queensland nickel refinery with bonuses
including 700 vacations in Fiji and 50 Mercedes-Benz sedans.
“Clive Palmer and Gina Rinehart – I
think the cast in this drama is the difficult part,” said Prasad Patkar
at Platypus Asset Management in Sydney. “They may need a compelling
reason to collaborate, and that compelling reason may be the government
insisting on one set of infrastructure if they want to develop their
tenements.”
The Queensland government wants
only a single rail corridor, state co-ordinator-general Keith Davies
said in a January 27 statement that revealed QR National’s A$2bn
proposal.
Mark Hairsine, a spokesman for QR
National, declined to comment on the threatened lawsuit. Hancock
Prospecting, which asked that requests for comment to be sent in
writing, did not respond to an e-mailed message.
Mining
companies in the basin should build a jointly owned railway to save
costs and speed development, Vale, the biggest exporter of iron ore,
said in November. The company may build a $10bn project in the region.
AMCI Capital, planning the $4.1bn South Galilee project, also said in
November that the producers needed to co-operate.
Proximity to ports
“These basins are getting further
and further away from the coast,” Tom Price, a commodity analyst at UBS
in Sydney, said. “The freight factor becomes critical.”
The Galilee basin covers more than
247 000km2 and contains more than 14 billion tons of coal, according to
Hancock’s website. Adani, controlled by billionaire Gautam Adani, 49,
may spend as much as $6.8bn on its Carmichael project, which is expected
to produce 60 million tons of coal. This would make it Australia’s
largest coal mine, according to UBS.
“It’s not unnatural given the
scale and the nature of the interest that there is a tension,” Lance
Hockridge, the chief executive of Brisbane-based QR National, said over a
week ago on a call with reporters. “I wouldn’t like to predict what
will happen.”
UBS analyst Price said he was optimistic the area would be opened.
“This
coal will get into the market because it’s better than anything the
Indians are consuming, and it’s better than about a third of the Chinese
market, and it’s on par to a little bit better than a big chunk of
Indonesian exports,” he said.
In India, shortages of local coal
have prompted power producers to rely on imported fuel for new plants.
Since 2007, companies including Tata Power, GVK Group and Reliance Power
have announced $4.4bn of coal-mine acquisitions in Indonesia and
Australia, according to data.
Rinehart last year got the backing
of GVK, which agreed in September to pay $1.26bn to buy the Kevin’s
Corner coal project, 79 percent stakes in Alpha and Alpha West
developments, as well as all of Hancock’s rail and port project.
“Our rail corridor is the most
advanced in the Galilee basin,” GV Sanjay Reddy, the vice-chairman of
GVK Power & Infrastructure, the group’s publicly traded unit, said
on Thursday in Brisbane. “Who will be selected is up to open competition
and given that we believe we’re the first, I don’t see why we should be
in a disadvantageous position from that point of view.”
GVK shares declined 1.2 percent to
17.15 rupees (R2.6611) at 2.09pm in Mumbai on Friday. The company has
dropped 33 percent in the past year.
Andrew Crook, of Crook Publicity, an outside spokesman for Waratah Coal, declined to comment.
Palmer’s
Waratah Coal, which incorporates China First, says Metallurgical
Corporation of China has arranged funding for 70 percent of the $8bn
capital cost of the China First project, according to its website.
Hancock, which has sent trial
shipments to China and South Korea, expects to see first coal in 2015,
and Waratah forecasts first production in late 2014.
The Galilee is estimated to
produce more than 200 million tons of thermal coal a year, mostly for
export, from at least five major projects, QR National said in a
February 16 investor presentation.
Global thermal coal exports during 2011 totalled an estimated 783 million tons, according to Morgan Stanley.
Australia shipped 143 million tons
of thermal coal in fiscal 2011, as well as 140 million tons for
steelmaking, government figures show, making it the world’s biggest
steelmaking and second-largest exporter of thermal coal after Indonesia.
“Galilee is going to be a very
significant challenge logistically, but I think the coal market will
need coal from the Galilee Basin probably toward the backend of this
current decade,” Peter Richardson, the chief metals economist at Morgan
Stanley Australia, said. – Bloomberg
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