Australia’s ambitious new coal frontier blown off track – Rebekah Kebede (Globe and Mail – September 4,2012)

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PERTH – 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-per-cent slide in Australian benchmark coal prices since the start of 2012 to just over $90 per tonne, as China’s demand has cooled.

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 ($47.4-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 frontrunner 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.

Mr. 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.

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