Adani slashes Oz project size to $4 bn

Capacity target lowered from 60 to 25 mn tonnes per annum

The Adani group has scaled down its Australian coal mine development project to $4 billion from $16 billion as falling coal prices and litigation by local environmental activists have delayed construction for the past six years. The group has also marked down the production target from 60 million tonnes per annum (mtpa), announced in August 2010, to 25 mtpa.

The group now plans to start construction by late 2017 and ship coal to its plants in India by 2019, instead of selling it in Asia, according to the original plan. “The new first-phase target of 25 mtpa leaves Carmichael in a sweet spot of spending, volume and operating costs that mean the mine will operate in the first decile of the cost curve at best and the first quartile at worst,” Adani Australia’s Chief Executive Officer Jeyakumar Janakaraj told Australian Financial Review on Wednesday.

The Australian project faced problems from day one. Ever since Australia’s biggest coal mine development project was announced by the Adanis, coal prices started falling (see chart) from $90 a tonne in August 2010 to $67 a tonne now. At the same time, there was opposition to the project from locals and activists, saying the construction of the mine and a railway track would hit local flora and fauna.

Soon, American and European banks backed out of the project.  Though the Adanis won a string of court cases filed by locals in Australian courts, falling coal prices finally made the project less viable. Meanwhile, the Adanis also shifted focus from coal-based plants to solar-based projects both in India and Australia.

The coal mine in Galilee Basin is located 400 km inland from the Australian coast without any power, road, water, aviation or rail infrastructure in place. The Adanis also own Abbot Point port in Queensland state that was to be used to export coal to India.

“Adani Enterprises will still face significant financial obstacles given its $2.6 billion of net debt relative to its current market capitalisation of just $1.2 billion plus a stated total capital expenditure plan across the entire, wider group around $40 billion,” said Tim Buckley, director of Energy Finance Studies – Australasia, IEEFA. The Adanis are not alone in facing hardship in Australia. Hyderabad-based GVK group is also stuck with its investment in Hancock mine.  The GVK Reddy family, which took over the mines for $1.26 billion in 2011, failed to pay the final tranche of $560 million to Australian billionaire Gina Rinehart-owned Hancock Prospecting, putting a question mark over the future of the project. GVK initially planned to invest $10 billion in developing three coal mines and infrastructure in Queensland.