In any sane universe, the SMH’s Michael West would be writing the AFR’s Chanticleer column for the simple reason that he’s the best business commentator in the country. Of course he isn’t because this is not a sane universe.
Nonetheless, his ongoing investigations at the Fairfax stable hint at a faint pulse in the formerly elite media stable turned glorified real estate agent.
Over the weekend, West destroyed Galiliee Basin coal:
…The cost of developing the project is slated at $18 billion all up. Adani has spent $2 billion buying Terminal 1 and $1 billion in Adani Mining. Terminal 0 is the big one. Where does Adani get a cool $15 billion?
The banks perchance? Unlikely. Thermal coal at a four-year low of $70 a tonne, cost of production $50 a tonne, quality of coal, to put it delicately, not the best. Cash cost of production roughly equals revenue. Then there is the small matter of finding $1 billion a year to fund the interest on the debt.
Tim Buckley, director at the Institute of Energy Economics and Financial Analysis, puts it bluntly: “This project is not commercially viable”. Apart from the financial deficiencies of the main participants, he says thermal coal is in structural rather than cyclical decline.
If the banks are loathe to part with that $15 billion, how about equity funding? Not much of that in evidence – no equity at all in Adani Mining. Might the parent, Adani Enterprises, tip in? Unlikely – it has debts of $US12 billion on an external market cap of $US12 billion.
…In case another red flag were in order, Linc Energy accepted $155 million from Adani last week for its option in the project. It is worth asking why Linc boss Peter Bond would sell a royalty of $2 billion over 20 years – perhaps worth $600 million today – for just $155 million.
There’s much more at the piece, including assessments of transfer pricing scams and exposure of Adani’s weak balance sheet. I suggest you read it. The project is regarded by most analysis that I’ve seen to sit on the coal cost curve at around $100 per tonne break even. That’s almost 50% above the current thermal coal price, and it remains in oversupply. Even more peculiar, there are existing coal mines for sale all over Australia that can produce coal cheaper than the Galilee so why Adani isn’t snapping them up instead I don’t know.
My own take on this is that the project’s real importance is not business-related at all, it’s political.
For QLD, as the Gladstone LNG projects begin to ship gas and shed some 20,000 construction workers a big coal project up the road worth 16,000 jobs would work nicely.
At the Federal level this is the project that will enable the Coalition to crow about the success of scrapping the mining and carbon taxes. Hard proof that they were right all along, credentials confirmed.
Galilee basin coal only makes sense politically. It has already received royalty discounts to get it going which leaves one wondering what other pork will be sent its way.
