Institute for Energy Economics and Financial Analysis (IEEFA), a Cleveland, Ohio, US-based independent research group, has pushed the panic button by saying that top industrial Gujarat-based Adani Group’s latest announcement of agreement with South Korea-based multinational company, POSCO, for joint investment in the Australia’s coal mining project in Queensland province is likely to “send shiver down the spine of global coal investors.” An Adani release said, the two have signed a “binding agreement” to develop a “rail line to open up the Galilee Basin coal reserves in Queensland”, which will “ lead to the opening of the Carmichael mine project.”
Proposed to be 388 km and would have a construction cost approaching A$3bn, the IEEFA said, “Adani suggests a key aspect of this agreement is that POSCO will provide some equity financing for the rail project, and that POSCO’s involvement should open up debt project financing from Korean banks.” Tim Buckley, IEEFA’s Director of Energy Finance Studies, Australasia, who signed the statement, said, “This project requires a thermal coal price well in excess of US$100/t to be commercially viable – it is currently sitting at US$60/t to US$70/t.”
While Adani has been accused by environmentalists in India and Australia for "overlooking" the damage to ecological concerns at Adani Port and SEZ in Gujarat and the coalmining project in Australia, POSCO is under fire in Odisha for its alleged move to "displace" thousands of tribals from their land while implementing its port-to-steel project (click HERE). While the Adanis were recently given clearance by the Supreme Court for its port and SEZ project, Greenpeace continues with its campaign against the Australian project even now (click HERE).
Buckley said, “Adding 60Mtpa of additional supply will have a materially adverse impact on the global seaborne price of thermal coal. 60Mtpa equates to a 6% expansion of global supply, at a time when most coal mining companies are evaluating mine closures. Opening up the Carmichael project will help facilitate upwards of 200Mtpa of additional thermal coal supply. Combined, a 30% expansion of global supply over the medium term will see the global thermal coal remain under pressure, and could in isolation drive the long term coal price permanently down 20% from current commodity analysts’ projections.”
Buckley opined, “This must surely send a shiver down the spine of any investor who has their money in global coal debt or equity investments, and rightly so.” The agreement comes when a proposed Korea‐Australia Free Trade Agreemen is currently being debated by the Australian Senate, which, according to Buckley. “will provide POSCO the right to sue the Federal and Queensland Governments in an international tribunal beyond the Australian legal system, should the government undertake any law or policy that POSCO deems to harm their rail investment.”
Buckley warned, “Adani Mining is yet to detail how it proposes funding a new $4‐5bn 50Mtpa coal export terminal at Abbot Point, nor the $5‐6bn required to construct the 60Mtpa greenfield thermal coal project at Carmichael. The remote location requires a massive capital outlay for greenfield construction of the mine, the railway and the coal export terminal, plus the associated water, road, airport, power and water infrastructure. This has been identified by Adani Mining as totally A$16.5bn.”
IEEFA has estimated the cash cost of production free‐on‐board (FOB) will be north of US$60/t including maintenance capex, rail and port charges and Queensland government royalties. “Given the low energy content of the Carmichael coal (identified by Adani Mining at 5,200‐5,400kcal NAR) and the very high ash content (identified as mostly in excess of 25%), the Carmichael coal is likely to be sold at a 20‐30% discount to the Newcastle benchmark (with a 6,000kcal NAR, 11‐14% ash content)”, it added.
“Given the Newcastle benchmark is currently trading at well below US$70/t, Adani Mining would be looking at revenue of below US$50/t, giving rise to a material cash loss on every tonne of coal sold,” Mr Buckley said,, adding, “The Adani Group has been reported to be seeking shareholder approval for a 16,000 crore (US$2.6bn) equity raising across the three Adani listed vehicles – Adani Enterprises, Adani Ports and Adani Power.”
“Any international investor considering participating in this capital raising should carefully review the purpose of the raising. The Adani Group has the attraction of providing strong leverage to the long term development of India’s power, ports and infrastructure markets. If the proceeds of the issue are then redirected to funding Australia’s biggest thermal coal mining complex, right on the edge of the Great Barrier Reef UNESCO listed World Heritage area, investors beware,” he said.
In its statement, the Adani Group said, “The rail project will lead to the opening of the Carmichael mine project which will deliver, in excess of 10,000 jobs, and will also provide vital opportunities for Australian Infrastructure development and contribute to energy security of India by lighting the lives of millions of Indians. This is the first major step towards finalising the Project’s construction contracts and we are proud to be associating with a partner of POSCO’s E&C standing. The binding agreement will enable us to develop a cost efficient rail solution and this relationship gives Adani access to Korean market, POSCO’s expertise and capital."
Buckley said, “Adding 60Mtpa of additional supply will have a materially adverse impact on the global seaborne price of thermal coal. 60Mtpa equates to a 6% expansion of global supply, at a time when most coal mining companies are evaluating mine closures. Opening up the Carmichael project will help facilitate upwards of 200Mtpa of additional thermal coal supply. Combined, a 30% expansion of global supply over the medium term will see the global thermal coal remain under pressure, and could in isolation drive the long term coal price permanently down 20% from current commodity analysts’ projections.”
Buckley opined, “This must surely send a shiver down the spine of any investor who has their money in global coal debt or equity investments, and rightly so.” The agreement comes when a proposed Korea‐Australia Free Trade Agreemen is currently being debated by the Australian Senate, which, according to Buckley. “will provide POSCO the right to sue the Federal and Queensland Governments in an international tribunal beyond the Australian legal system, should the government undertake any law or policy that POSCO deems to harm their rail investment.”
Buckley warned, “Adani Mining is yet to detail how it proposes funding a new $4‐5bn 50Mtpa coal export terminal at Abbot Point, nor the $5‐6bn required to construct the 60Mtpa greenfield thermal coal project at Carmichael. The remote location requires a massive capital outlay for greenfield construction of the mine, the railway and the coal export terminal, plus the associated water, road, airport, power and water infrastructure. This has been identified by Adani Mining as totally A$16.5bn.”
IEEFA has estimated the cash cost of production free‐on‐board (FOB) will be north of US$60/t including maintenance capex, rail and port charges and Queensland government royalties. “Given the low energy content of the Carmichael coal (identified by Adani Mining at 5,200‐5,400kcal NAR) and the very high ash content (identified as mostly in excess of 25%), the Carmichael coal is likely to be sold at a 20‐30% discount to the Newcastle benchmark (with a 6,000kcal NAR, 11‐14% ash content)”, it added.
“Given the Newcastle benchmark is currently trading at well below US$70/t, Adani Mining would be looking at revenue of below US$50/t, giving rise to a material cash loss on every tonne of coal sold,” Mr Buckley said,, adding, “The Adani Group has been reported to be seeking shareholder approval for a 16,000 crore (US$2.6bn) equity raising across the three Adani listed vehicles – Adani Enterprises, Adani Ports and Adani Power.”
“Any international investor considering participating in this capital raising should carefully review the purpose of the raising. The Adani Group has the attraction of providing strong leverage to the long term development of India’s power, ports and infrastructure markets. If the proceeds of the issue are then redirected to funding Australia’s biggest thermal coal mining complex, right on the edge of the Great Barrier Reef UNESCO listed World Heritage area, investors beware,” he said.
In its statement, the Adani Group said, “The rail project will lead to the opening of the Carmichael mine project which will deliver, in excess of 10,000 jobs, and will also provide vital opportunities for Australian Infrastructure development and contribute to energy security of India by lighting the lives of millions of Indians. This is the first major step towards finalising the Project’s construction contracts and we are proud to be associating with a partner of POSCO’s E&C standing. The binding agreement will enable us to develop a cost efficient rail solution and this relationship gives Adani access to Korean market, POSCO’s expertise and capital."
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