by: Andrew Fraser From: The Australian April 22, 2013 12:00AM
The Waratah project of Clive Palmer is making little progess. Pic. Bloomberg Source: Bloomberg
Source: The Australian
Conservative estimates say there are about 20 billion tonnes of thermal coal in the basin, which runs about 200km further inland from the Bowen Basin
LANG Hancock was one of the first to see the commercial potential of getting coal out of the Galilee Basin back in the 1970s, but in his thinking-outside-the-square way, he saw the massive coal deposits of the Galilee travelling not east to a port to be shipped out of the country but west to the Kimberleys.
There, the plentiful and cheap supply of coal would power mighty factories with cheap and plentiful supplies of iron to produce world-class industrial products and turn the Kimberleys into a sort of Ruhr in northwest Australia.
It was an ambitious proposal that was strongly backed by then Queensland premier Joh Bjelke-Petersen, but according to mining magnate Clive Palmer -- then active in the Queensland branch of the National Party -- Malcolm Fraser put the kybosh on the idea by not allowing a railway line through the Northern Territory.
. . The main reason the development of the Galilee Basin has been held back is its location, a few hundred kilometres further inland than existing coal precincts and so less economically viable.
But while the area has always faced problems in its development because of its distance to market, there has never been any doubt about the size of the coal deposits there.
Conservative estimates say there are about 20 billion tonnes of thermal coal in the basin, which runs about 200km further inland from the Bowen Basin, which itself lies about 200km inland from the coastline of central Queensland.
To put that into perspective, coal exports from Australia are currently 160 million tonnes, rising up to 190 million tonnes. At the moment there are 10 major projects for development in the Galilee, and exports from there are projected to be about 100 million tonnes within a few years but possibly rising to 200 million tonnes -- or doubling coal exports into the future.
So while geologists have always known that the Galilee Basin had a lot of coal in it, the main problem in exploiting it was its distance to market, as it is just a bit further to port -- that's on the east coast, not Hancock's vision of transporting it across the country to the west coast -- than the Bowen Basin.
But the development of the Bowen Basin shows the importance of infrastructure. While coalmines have operated in the Bowen Basin since the early 60s, the area was really only opened up to major development once railway lines were laid down in the late 60s and early 70s and the ports of Gladstone, Hay Point and Dalrymple Bay developed at the same time.
But while the development of the Bowen Basin continued apace throughout the rest of the 20th century and most of last decade, it was only in 2008 that the Galilee was resurrected as an idea by former MIM miner Peter Lynch, who embraced the original Hancock dream of a brand new dedicated port at Dalrymple Bay near Rockhampton on land owned by the Defence Department.
This option was favoured because the water off the coast at this point is extraordinarily deep and would easily allow the passage of "super-tankers" but the Dalrymple Bay option was knocked on the head by then federal environment minister Peter Garrett, who, in one of those coincidences that abound in Australian politics and business, had previously been a strong opponent of sand mining in Dalrymple Bay when he was president of the Australian Conservation Foundation.
No matter -- the proponents all got on with the plan of finding an alternative port, in this case, Abbot Point. For that matter, the early proponents were changing -- Palmer, familiar with the potential of the area from his days as a National Party flak, bought out Peter Lynch, while another early proponent was Gina Rinehart, Hancock's daughter, who still had a large number of coal leases left over from the days when her father plotted with Sir Joh to take all that coal over to the west.
So with worldwide demand for coal rapidly quickening in 2008 and two very powerful lobbyists involved, it seemed to be all systems go for the province, and over the next two years there was a major upgrade planned for Abbot Point, all three major proponents planning railway lines to Abbot Point, and more work being done on the actual size of the coal deposits in the area.
But in 2010 the development took on another turn, when India's Adani Group purchased the holdings of Linc Energy in a deal potentially worth $3bn over 20 years, as Linc will still get a proportion of monies accumulated from exporting 30 million tonnes of coal a year.
Adani made no secret about its intentions -- it wanted complete vertical integration over the supply chain, owning not just the coalmines but also the railway lines to port, the Australian port, the ships taking the coal back to India, the ports in India, and the railway lines and power stations in India.
Essentially, it wanted a reliable supply of coal where it could control the long-term price.
Adani, owned by Indian billionaire Gautam Adani, already has the Indian section tied up, but the company started working on tying up the Australian end by purchasing Abbot Point for $1.83bn and starting work on developing another port at Dudgeon Point, near the existing coal port of Dalrymple Bay.
But another Indian company became involved early in 2011 when GVK, owned by another Indian billionaire, GV Krishna Reddy, purchased most of the holdings of Hancock Coal for $2.2bn, which included two mines in the Galilee Basin -- Kevin's Corner and Alpha Coal, as well as $900m for rail and port infrastructure.
But Hancock has retained a small holding, more importantly it has retained a lot of the control over the project, with GVK Hancock Coal managing director Paul Mulder, effectively running the project, although Krishna Reddy's son, Sanjay, spends a large amount of time in Australia as well.
But GVK has probably firmed as the leader in the development of its resources in the Galilee Basin, as it has been given approval to proceed with its railway line, meaning that the other companies will have to negotiate with it on that vital piece of infrastructure. In addition, GVK has port space at Abbot Point through its association with Hancock Coal, which was awarded port space there by the previous Queensland government.
The one venture which does not seem to be making progress is Palmer's Waratah Coal project, despite its owner's conspicuous links to the new Queensland government and his colourful reputation as the biggest political donor in Australia. Palmer has got neither port nor rail facilities, yet he still claims that his coal holdings are the largest in the Galilee.
All the attention has also drawn other big international players to the Galilee, with Brazilian company Vale having a resource capable of producing 30 million tonnes annually, while Meijin Energy, owned by Chinese billionaire Yao Junliang and trading in Australia as Macmines AustAsia, has a resource of 30 million to 60 million tonnes annually.
The only company listed on the Australian Stock Exchange with interests in the Galilee is Bandanna Energy, which has an estimated 1.2 billion tonnes of thermal coal.
While world coal prices have dropped since the heady days of late last decade when "coal rush" took on much the same connotations as the "gold rush" of the 19th century, it is still long-term demand, primarily from Asia, and in particular China and India, which drives the development of the Galilee Basin.
Back in 2008 the early estimates of when coal would be exported from the basin overseas were around 2012, but that has slipped out to 2016 for the first shipments, most likely from GVK.
(20min delay)
