ASX-listed U&D Coal announced on 16 May 2014 that its wholly owned subsidiaries U&D Mining Industry (Australia) and Endocoal had signed an agreement with Sojitz Coal Mining (a wholly owned subsidiary of Japan’s Sojitz Corporation) for a proposed joint venture and farm-in agreement for its Meteor Downs South project. Parts of the agreement are immediately legally binding, although the joint venture and farm-in agreement is to be negotiated in good faith between the parties. The proposed non-binding principles of the agreement include that Sojitz will develop an approved mine plan at its cost, cover all costs associated with the design, construction and commissioning of the mine, as well as provide all capital equipment necessary for the mining operations. In return, Sojitz will acquire a 50% interest in the mining lease and will be appointed as the initial manager of the Meteor Downs South Joint Venture. The Meteor Downs South project is located in Queensland’s Bowen Basin and has a JORC resource of 16.82 Mt including 13.32 Mt at a JORC measured category. Corrs Partner Bruce Adkins and Senior Associate Nick Thorne advised U&D Coal on this transaction.
Further to our reporting in the April 2014 edition of the Australian Mining Sector Update, ASX-listed Aquila Resources announced on 14 May 2014 that it has received a bidder’s statement from Aurizon Operations and Baosteel Resources Australia. The bidder’s statement sets out the terms of Aurizon and Baosteel’s conditional off-market takeover offer for all of the ordinary shares in Aquila not already owned by them at a price of A$3.40 cash per share. On 29 May 2014, Aurizon and Baosteel received notice that the FIRB conditions to their takeover offer have been fulfilled and that there is no objection to their acquisition of Aquila. Further, Aurizon and Baosteel have confirmed that there are no Chinese regulatory approvals or funding conditions associated with the takeover offer, which will remain open to acceptance until 11 July 2014 (unless extended by Aurizon and Baosteel). An independent board sub-committee constituted by the non-Baosteel members of Aquila’s board has been formed to consider the offer and to formally respond via a target’s statement.
On 19 May 2014, ASX-listed Cuesta Coal announced that it has executed a share subscription agreement with its major shareholder Longluck Investment (Australia) (a wholly owned subsidiary of Beijing Guoli Energy Investment Co). Under the agreement, A$8.5 million will be raised via the issue of approximately 82.5 million new ordinary shares to Longluck (Stage1 Placement), with an additional A$6.5 million to be raised via the issue of approximately 63.1 million new ordinary shares to Longluck (Stage 2 Placement) to occur within three months of the settlement of the Stage 1 Placement. The placement is conditional on a number of approvals, including Chinese Regulatory, FIRB and Cuesta shareholder approvals. Funds raised by the placementwill be used to progress the definitive feasibility study of Cuesta’s flagship Moorlands project (an open-cut thermal coal mine located in Queensland’s Bowen Basin), as well as to repay the A$5 million convertible note liability associated with the acquisition of the Orion coal project in 2012. Following the settlement of the Stage 1 Placement, Beijing Guoli’s shareholding in Cuesta will increase to from 26.4% to 47.8%, and is then set to further increase to 54.1% following the settlement of the Stage 2 Placement. Cuesta anticipates completing Stage 1 Placement in August 2014 and the Stage 2 Placement in early November 2014.
Recently completed deals
Further to our reporting in the April 2014 edition of the Australian Mining Sector Update, ASX-listed MetroCoal announced on 6 May 2014 that its on market bid for Cape Alumina (which was made on 18 March 2014) has closed, with MetroCoal holding 57.22% of Cape Alumina’s issued share capital at bid close. MetroCoal has stated that this acquisition provides MetroCoal’s shareholders with exposure to the bauxite market and the opportunity to establish a project pipeline around bauxite assets in the short to medium term, as well as coal assets in the long term.
Market rumours and opportunities
According to The Australian, the Wiggins Island Coal Export Terminal (WICET) located in Gladstone, Queensland may be sold off in the next few years to international investors following its completion. Reportedly, WICET Chairman John Massey has stated that Grant Samuel has been appointed to investigate refinancing and other options for the project once it reaches maximum capacity and its project finance conditions have been satisfied. WICET has reportedly attracted interest from infrastructure investors and investment banks, but the eight owners of the project (including Glencore and ASX-listed companies Aquila Resources, Wesfarmers and Yancoal) have not yet made a decision as to any divestment. WICET is aiming to export 27Mtpa of coking and thermal coal, with preliminary exports anticipated to commence in early 2015.
According to India’s The Economic Times, Lanco Infratech, GVK Group and Adani are all investigating the potential to divest an interest in their respective coal mining projects and associated infrastructure located in Australia. Reportedly, GVK and Adani are participating in discussions with interested clients and contractors and are proposing to introduce construction and technical experts into their projects. Additionally, parties that have existing power projects in Asia are reportedly being approached to see if they are interested in acquiring a stake in these projects as a means to secure guaranteed coal supplies. In order to lower its reported INR340 billion debt, Lanco may reportedly consider offloading an interest in ASX-listed Griffin Coal Mining Company.
MINERAL AND ENERGY RESOURCES (COMMON PROVISIONS) BILL 2014 (QLD)
On 5 June 2014, the Mineral and Energy Resources (Common Provisions) Bill 2014 (Qld) was released, firing the starting gun for the complete legislative overhaul facing Queensland’s resources sector.
The Modernising Queensland’s Resources Acts Program (MQRA Program) proposes to replace the five existing resources Acts:
- Mineral Resources Act 1989 (Qld);
- Petroleum and Gas (Production and Safety) Act 2004 (Qld);
- Petroleum Act 1923 (Qld);
- Greenhouse Gas Storage Act 2009 (Qld); and
- Geothermal Energy Act 2010 (Qld),
and their associated regulations (Resources Acts) with a single, common resource Act that unifies tenure administration across all sectors of Queensland’s resources industry. The MQRA Program is a staged reform process, anticipated to take three to four years to complete, targeting a reduction in existing regulatory burdens and related compliance costs, consistent with the Newman Government’s election promise to cut red tape by 20%.
The Bill represents stage one of the reform process, creating the “shell” for the final common resources Act into which provisions will incrementally be transferred from the Resources Acts. Once enacted, the Mineral and Energy Resources (Common Provisions) Act will co-exist alongside the Resources Acts and apply to the different “resource authorities” (a new term used to describe the different tenures under the Resources Acts) across all of the Resources Acts until such time as the final common resource Act is in place and the separate Resources Acts are ultimately repealed.
Another major component of the Bill is a complete re- design of the overlapping coal and CSG tenure regime. The existing overlapping tenure regime, which was introduced in 2004, has been widely criticised for being unnecessarily complex and impeding the development of coal and CSG resources in Queensland. In particular, this new regime removes the existing barriers to grant of a resource authority in areas where there is overlap between coal and CSG tenure and establishes a right of way for coal (subject to certain notice and information sharing requirements).
We have prepared an article highlighting the key matters covered by the Bill other than the new coal / CSG overlapping tenure regime. The article is available here.
ENVIRONMENT PROTECTION AND BIODIVERSITY CONSERVATION AMENDMENT (BILATERAL AGREEMENT IMPLEMENTATION) BILL 2014 (CTH)
Consistent with the Federal Government’s election promise of delivering a ‘one stop shop’ for environmental approvals, the Environment Protection and Biodiversity Conservation Amendment (Bilateral Agreement Implementation) Bill 2014 (Cth) was introduced into the House of Representatives on 14 May 2014.
The Bill proposes to amend the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) by making technical amendments relating to bilateral agreements under Part 5 (Bilateral agreements).
Specifically, the Bill proposes to:
- allow States and Territories to be accredited for approval decisions on large coal mining and coal seam gas developments that are likely to have a significant impact on a water resource;
- ensure that all States and Territories are able to be declared under the EPBC Act for the purposes of requesting advice from the Independent Expert Scientific Committee;
- clarify that proponents do not need to make referrals to the Commonwealth for actions that are covered by an approval bilateral agreement;
- ensure there is an efficient process to enable the Commonwealth to complete the approval process where an approval bilateral agreement is suspended or cancelled, or ceases to apply to a particular action;
- ensure that State or Territory processes that meet the appropriate EPBC Act standards can be accredited for bilateral agreements, recognising the different technical approaches taken by different States and Territories to give legal effect to those processes; and
- provide for an efficient process so that the relevant bilateral agreement continues to apply to an accredited State or Territory management arrangement or authorisation process, where there are minor amendments to that arrangement or process.
On 15 May 2014, the Bill was referred to the Senate Environment and Communications Legislation Committee for inquiry and report by 23 June 2014.
ADANI’S CARMICHAEL COAL MINE AND RAIL PROJECT APPROVED
The Queensland Coordinator-General has approved Adani’s proposed A$16.5 billion Carmichael Coal Mine and Rail project located in Queensland’s Galilee Basin, subject to extensive environmental and social conditions.
The Carmichael project proposes a combination of open- cut and underground coal mining and is anticipated to produce 60 Mtpa of thermal coal for export. In a recent Ministerial Statement, Deputy Premier and Minister for State Development, Infrastructure and Planning, Jeff Seeney, said this project has the potential to not only be the largest coal mine in Australia, but one of the largest in the world.
The Carmichael project is still subject to Federal environmental approval, with the Queensland Coordinator- General’s report to now be assessed by the Commonwealth Environment Minister under the Environment Protection and Biodiversity Conservation Act 1999 (Cth).
QUEENSLAND GOVERNMENT DEFINES RAIL CORRIDOR POLICY
The Queensland Government has confirmed its policy that only two multi-user rail corridors are necessary to service the needs of Queensland’s Galilee Basin. In a recent Ministerial Statement, Deputy Premier and Minister for State Development, Infrastructure and Planning, Jeff Seeney, has said that the corridors best- placed to service the region are:
- the rail corridor approved in GVK and Hancock Coal’s Alpha Coal project proposed to join into the Aurizon rail network; and
- the rail corridors being developed for Adani’s Carmichael Coal Mine and Rail and North Galilee Basin Rail projects.
Mr Seeney has stated that his “clear view is that these two corridors reflect the projects that are best placed in their approval processes, they have pit-to-port capability and they continue to progress in a manner which suggests they are serious about moving forward”.
THE 2014 BUDGET – PROPOSED EXPLORATION DEVELOPMENT INCENTIVE
The Australian Federal Government has promised A$100 million over the forward estimates period under the 2014 budget, aimed at encouraging investment in small exploration companies undertaking greenfields mineral exploration in Australia. This initiative is known as the Exploration Development Incentive (Incentive). The Incentive is targeted at addressing the downturn in mineral exploration expenditure which fell 9.8%, while greenfields drilling fell 33.2%, in the December quarter.
How will it work?
It is proposed that under the proposed Incentive, a tax credit will be provided to Australian resident shareholders for eligible greenfields exploration expenditure incurred in Australia, starting for investments made from 1 July 2014.
To ensure that the Incentive is only available for investment in junior mineral exploration companies, it is proposed that the Incentive will be open to companies that:
- are listed or have over 50 members and dispersed ownership;
- engage in the exploration for new mineral discoveries in Australia; and
- meet a “no taxable income” test.
FIRST COAL FROM COCKATOO COAL’S BARALABA EXPANSION
An official opening for the commencement of mining operations at ASX-listed Cockatoo Coal’s Baralaba North Expansion project was held on 9 May 2014. The first phase of the metallurgical coal mine will allow Cockatoo Coal to increase production from approximately 700,000 tonnes per year to approximately 1 Mtpa, with a further increase expected to increase production to 3.5 Mtpa by 2015.
Cockatoo Coal’s CEO Andrew Lawson has stated that coal will be exported through WICET to Japan and Korea for steel making purposes initially, with future opportunities to export to China, Taiwan and India.