Aims to develop mine, rail-port infrastructure for evacuation of coal.
After completing its big-ticket acquisition of an Australian coal asset from Linc Energy, Adani Enterprises will now make an additional investment of $3.5-4 billion (Rs 15,700-18,000 crore) to develop the necessary mining infrastructure and logistics, including a rail link and a coal terminal in a port facility. This combined investment of over A$6.5 billion (over Rs 28,000 crore) will make it the largest coal sector investment in Australia.
In August, Adani – India’s biggest coal importer – agreed to pay $2.7 billion (Rs 12,500 crore) in a cash and royalty deal for the coal asset in the Galilee Basin of Queensland, Australia, which has one of the largest high-grade thermal coal deposits, at 7.8 billion tonnes.
To begin with, there will be open-cast mining. But, eventually, the mining will go underground. On an average, for a 30-million-tonne per year extraction, the mining development cost is typically around $1.5 billion (over Rs 6,700 crore). Adani will start at that level, but will ramp it up to 50 million tonnes a year. So, that should be a $2.2-billion (nearly Rs 10,000-crore) capex, according to officials involved in the process.
“It would not only be the largest producing mine in Australia, it would be one of the largest in the world,” said Harsh Mishra, president (corporate planning), Adani Group in Australia.
Adani's spokespersons, however, did not respond to Business Standard's queries about the company's evacuation plans.
Challenging task
Logistics will be a critical challenge. Adani’s Galilee tenement is about 100 km north of Alpha in central Queensland. But, at the moment, there is no infrastructure connecting the Galilee Basin to a port.
The test that Adani’s team faces is that cheaper rail routes are all linked to coal terminals in ports which are fully occupied. So, expanding the existing port facility is one option and Adani is indeed following that seriously, but so are other miners. Or else, Adani will have to invest in the longer rail routes, either alone or in consortia.
From Queensland, there are five port options — Brisbane, Maryborough, Gladstonne, Hay Point and Abbott Point. But for Adani, to ship coal out from Australia, the last two choices are the best bet.
Adani has received permission from the local port authority to do a feasibility study to construct its own port and coal terminal at Dudgeon Point, as part of an expansion programme of the port of Hay Point. It will have to spend over $600 million (nearly Rs 2,700 crore) on a coal terminal alone that can handle their load factor.
There’s competition, too
This proposed site is very near to Dalrymple Bay Coal Terminal (DBCT) and Hay Point, being run by BHP Billiton and Mitsubishi together as captive terminals. But both BHP and DBCT have also shown interest in additional coal terminals as they need excess terminal capacity for their operations. Their current captive terminals are fast reaching their peak as BHP is increasing annual production.
If Adani does finally get selected, then it will be a cheaper and easier logistical route and they will only need to invest in a 150-km stretch to Clairmont from their mine site where they is no rail linkage today. From that point onwards till the port, there are existing rail links used by others and only additional lines will need to be put in. The total combined investment will then come down, giving the Adanis considerable leg room.
The other option is the port of Abott Point, which has considerable excess capacity to handle the extra load. But to access that, a 500-km railroad needs to be built at an estimated cost of $3 billion (nearly Rs 13,500 crore).
Adani plans to mine around 52-60 million tonnes of coal every year to bring it to India and use some for trading, with operations beginning in 2014.
While Adani would only pay A$500 million (Rs 2,100 crore) as an upfront cash payment, the rest is payable as a A$2 (Rs 41.60) per tonne royalty for the first 20 years of production from the mine.
Instead of depending on one miner to foot the bill, the local authorities have asked some of the other big mining companies in the region, like Waratah Coal or Hancock, to form a joint venture SPV and co-invest in the rail road.
“Future of mining is in setting up the infrastructure. But Indian companies need to invest in competences in building mining related infrastructure like specialised railroads, storage facilities, ports and terminals. Also, we may have the hard tools, but softer elements are equally critical. Do we need to know the local environment, regulations, its people, politicians, just like the Chinese have done in Africa?” asked Prasad Baji, senior metals and mining analyst with Edelweiss.
