Hi GuysI thought you all may find this article of interest.Costs...

Hi Guys

I thought you all may find this article of interest.

Costs may mar high hopes for Galilee Basin

Tony Grant-Taylor and Robert MacDonald
From: The Courier-Mail
June 13, 2011 12:00AM



Waratah

ALL MINE: Waratah Coal chief Peter Lynch holds a lump of coal while standing near a concept poster for the Galilee Basin development. Picture: Liam Kidston Source: The Courier-Mail

WILL Queensland's Galilee Basin be forever a field of dreams or the world's next great coal precinct?

The potential of the region has attracted local and international miners from China, India and Brazil who now have an estimated 59,000sq kms under tenure, second in size only to the far more famous Bowen Basin to the east.

Mining industry analysts Wood Mackenzie estimate almost as much land again has been applied for.

At least six major companies and consortia are at various stages of detailed mine planning, the highest profile of them involving Clive Palmer's Waratah Coal and Gina Rinehart's Hancock Coal.

Also in the mix are the world's second largest mining company Vale, India's Adani and Chinese interests, including the country's biggest coke producer, Meijin Energy.

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Most of the development plans revealed to date are highly ambitious with targeted production rates of between 15 and 30 million tonnes per annum, which compare with the 10mtpa output of Australia's largest coalmines today.

Eventual investment could rival the $50 billion to $60 billion currently being spent on the state's new coal seam gas industry, with production starting as early as 2014 if the optimistic plans of promoters are met.

If all the mooted projects eventuate, the Galilee Basis could, by Wood Mackenzie's calculations, be exporting 195 million tonnes of thermal coal a year by the end of the decade.

Wood Mackenzie's own estimates are rather more conservative.

Lead analyst Ben Willacy suggests first coal will not be shipped until 2019.

The problem is, would-be Galilee miners face enormous challenges in turning their dreams to reality, not least of them, finding a way to get their coal 500km to the coast.

They would first need to build multibillion-dollar rail lines and then new port facilities, most logically at Abbot Point near Mackay, before shipments could begin.

A second big challenge is working out how to work together. The State Government has reportedly spent the past two years trying to get key proponents to agree on potential common user infrastructure but apparently without success. As a result, most companies in the Galilee Basin are still proposing to build their own rail lines and port facilities.

The third, obvious stumbling block, is money. Just last week Clive Palmer stunned the market by pulling, the long-awaited $3.6 billion stock market float of his Resourcehouse group at the 11th hour. Funds raised would have helped underwrite his planned China First project in the Galilee Basin.

Palmer insists the project is still on track to meet its late 2014 production timetable thanks to the backing of private investors and an offer by the Chinese state-owned Export-Import Bank to lift its promised funding to $6.8 billion, which would cover 85 per cent of the project's estimated $8 billion cost.

He has also said the partners who would build the project, Metallurgical Corp of China and China Railway Group plus an as-yet-unnamed third Chinese entity would each put in $200 million.

The project is yet to see its environmental impact statement ticked off by the Queensland Government and it as yet has no mining leases.

Elsewhere in the Galilee Basin Hancock Coal has been negotiating with India's GVK group headed by Indian billionaire GV Krishan Reddy to purchase the company's Kevin's Corner and Alpha Coal deposits, which could cost an estimated $8 billion to develop.

The status of those talks is unknown but many observers believe the timetables being talked about of first coal by 2013, which would require major construction getting under way this year are more than ambitious. Locally listed miner, Bandanna, which had been hoping to sell its Galilee areas to raise funds to progress closer coal measures in the Bowen, is also open to full bids at the right price, but is also taking its time lining up a buyer or buyers.

India's Adani is also examining options for eventual export of coal from its Carmichael project in the Galilee Basin, which it bought from Linc Energy last year for $500 million. It has since won major project status from the State Government for a development proposal costed at $10 billion, with a targeted start-up in 2014 and an eventual output of up to a staggering 60 million tonnes a year. Environmental studies are under way.

Recent weeks have seen yet more declarations of strong interest in Galilee Basin coal, with Brazil's Vale, which has been quietly exploring in the region since 2006, revealing it had its hands on an estimated 12-15 billion tonne resource, sufficient for a 30mtpa mine at its Degula site, which sits between Hancock Coal and Waratah Coal's project areas.

Studies are still in the pre-feasibility stage but Vale Australia's operations director Steve Badenhorst said the company had the capacity to fund its projects internally and could move quickly to development.

Also in recent days Meijin Energy, China's biggest coke producer said it would begin studies for a possible 30mtpa mine based on leases held since 2006.

One final important consideration for the future of the Galilee Basin is the coal price.

Wood Mackenzie's detailed cost analysis shows that an average thermal coal price of $US80 per tonne is required for Galilee Basin projects to achieve a 10 per cent internal rate of return.

"While this is lower than current Newcastle spot prices for thermal coal, Galilee Basin coal is likely to receive a discount to the Newcastle benchmark, as its energy content is lower, and moisture levels higher," Wood Mackenzie's Willacy said.

And while strong future demand in China for thermal coal imports would be a major boost to the prospects for developments in the basin, "as relatively low margin, high volume assets, Galilee Basin mines will be highly sensitive to price and exchange rate movements."

In short, hopes are high in the Galilee Basin.

But the cost to realise them will also be high.