Following the CBA last month pulling out of its role as financial adviser, Adani’s controversial $16 billion Carmichael thermal coal mine has been dealt another blow, with one of its two big external customers – Korean giant LG – confirming that it will not purchase coal from the project. From Fairfax’s Michael West:
It was reported last year that LG had signed a letter of intent with LG to purchase four million tonnes of coal. However LG issued a statement on Wednesday saying: “The LOI concluded by and between LG International Corp and Adani Mining Pty Ltd was non-binding and is invalid as of July 21, 2015 in accordance with the expiration of the LOI”…
A large resources project requires backing from banks and customers as pre-requisites to financial close.
The withdrawal of LG leaves just Korean group Posco as the only other in-house buyer, with a prospective 5 million tonne demand. More than half the production is earmarked for the Indian upstream company Adani Power.
As we have argued previously, the Adani project makes absolutely no sense and should be abandoned.
The thermal coal price is in the process of returning to pre-boom levels of around $40:
And the global coal glut is large and will only get larger as China switches from coal power and lowers the energy intensity of its growth.
In the current environment, the Adani project would very likely lose money, worsen the global coal supply glut, accelerate the closure of cheaper Australian coal mines (displacing other coal mining jobs), as well as drop Australian productivity.
It also risks damaging the Great Barrier Reef via continual dredging and the thousands of coal ships that will transport the export coal each and every year, thus placing Australia’s tourism industry at risk.
If Adani wants coal, the world is swimming in cheap and cheerful stuff that is already for sale. Buy that instead.
