On 24 November 2014, Peabody Energy announced an agreement to establish a joint venture between Peabody's Wambo Coal Mine and Glencore's United Coal Mine in New South Wales. The fifty-fifty joint venture will combine Wambo's open-cut mining operations with United's adjacent reserves in the Hunter Valley. The joint venture is expected to deliver significant synergies by improving productivity, lowering costs and expanding mine life. Glencore will manage the combined mining operations utilizing existing infrastructure at Wambo, while Peabody will continue to operate coal washing and loading facilities. The project is anticipated to commence in 2017, subject to regulatory approvals.
On 17 November 2014, the Queensland Government announced its willingness to provide significant investment in infrastructure to support the Galilee Basin. Premier Campbell Newman confirmed that the State Government is prepared to take short term, financial stakes in rail, port or other infrastructure required to open up the Galilee Basin and create employment opportunities. The first Infrastructure Enabling Agreement will be signed with Adani to build the rail link from the Carmichael Coal Project to the Port of Abbot Point. This investment will help kick-start the A$16.5 billion dollar project and is a major milestone in Adani’s plan to export its first coal from Abbot Point to India in 2017. In addition, Adani also announced on 17 November 2014 that the State Bank of India had agreed to provide the company with a credit facility of up to US$1 billion subject to a detailed assessment of the Carmichael Project. The Carmichael Project holds a JORC certified resource in excess of 11 billion tonnes of thermal coal and is the centrepiece to Adani’s integrated mine, rail and port project in the Galilee Basin.
On 10 November 2014, Coalbank Limited, the ASX-listed exploration and development company with early-stage coal assets in Queensland’s Eromanga, Surat and Bowen Basins, announced that it had entered into a binding Terms Sheet with Zedemar Holdings, a privately owned company to acquire a 100% interest in ML 4712, known as the Ebenezer Mine, together with its associated assets including MDL 172. Ebezener is an established thermal coal mine currently under care and maintenance with current JORC Probable Reserves of 13.7 Mt and JORC Resources of 308.2 Mt.
Key terms of the deal include a purchase price A$10 million, and a royalty payment of A$1 per saleable tonne of coal produced from each of ML 4712 and MDL 172 (capped at a maximum of 20 million tonnes). Completion of the purchase is subject to a number of conditions precedent, including finance and shareholder approval (if required).
On 7 October 2014, Fox Resources announced that it had engaged PCF Capital to evaluate divestment alternatives for its Bundaberg Coking Coal Project in Queensland. Fox says that divestment will allow it to focus on developing its Western Australian nickel and base metals projects. The Bundaberg Coking Coal Project is located 20 km north of Bundaberg and has an Inferred Resource of 101 Mt with significant exploration potential. An independent valuation obtained for a recent rights issue provided a preferred value for the Project of A$17.9 million within a range of A$15.5 million and A$21.5 million.
On 28 November 2014, the Board of OGL Resources, an ASX-listed company with a focus on coal exploration and mining, resolved to place the company into voluntary administration. With no direct improvement in OGL’s position, and limited ability to raise additional funds, the Board formed the view that the company may not be able to continue as a going concern.
Market rumours and opportunities
According to a Mergermarket report on 31 October 2014, Shandong Energy Group, the Chinese State- owned mining company, is rumoured to be looking for someone to acquire a minority interest in its Australian coal business, Shandong Energy Australia, which owns three early-stage coal projects in Queensland’s Bowen Basin that are expected to produce coking and PCI coal. The transaction proceeds would reportedly be used to expand the working capital base of the Australian unit. A company source reportedly said that the preferred investor would be a Chinese or Australian coal company with strong financing capabilities, or a private equity fund with a portfolio of mining and energy assets.
Further to our reporting in October 2014, the receivers and managers of Western Desert Resources’ have advertised in the Australian Financial Review, seeking expressions of interest for Western Desert’s Roper Bar Iron Ore Mine and associated assets. The Mine is located in the Roper Bar region of the Northern Territory and, according to the advertisement, comprises fully permitted mining leases with an existing 100%-owned mine on care and maintenance, as well as a proven infrastructure solution with a fully integrated pit to port logistics chain.
According to an article in the Wall Street Journal on 10 October 2014, Glencore has had a “preliminary” conversation with Cliffs Natural Resources Inc in relation to Cliffs’ Australian iron ore assets. Cliffs is reportedly looking for a buyer for these assets however, despite some interest, the article noted that Cliffs has not received any firm offers. Cliffs is a mining and natural resources company that operates iron ore mines in Eastern Canada and Western Australia and produces metallurgical coal in the USA.
Environmental Protection and Other Legislation Amendment Act 2014 (Qld)
The Environmental Protection and Other Legislation Amendment Act 2014 (Qld) received royal assent on 7 November 2014. According to the Explanatory Notes, the Act implements a second round of Greentape Reduction reforms by making amendments to a number of Acts administered by the Department of Environment and Heritage Protection for the purpose of streamlining legislative processes, providing regulatory simplification, and improving penalties and enforcement tools, whilst maintaining environmental outcomes. Amongst other things, the Act amends the Environmental Protection Act 1994 (Qld) to clarify and simplify the contaminated land provisions and increase the maximum penalty for the most serious offences. A copy of the Act can be found here.
Ports Bill 2014 (Qld)
The Queensland Ports Strategy was released in 2014 as the Government’s blueprint for improving the efficiency and environmental management of the State’s ports network over the next ten years. The Queensland Ports Strategy nominated five Priority Port Development Areas (PPDAs) in which future port development will be concentrated, declaring PPDAs over the Ports of Gladstone, Hay Point and Mackay, Abbot Point and Townsville.
On 25 November 2014, the Ports Bill 2014 (Qld) was introduced into Parliament to implement the Queensland Ports Strategy and provide the legislative framework to establish the PPDAs. The Bill prohibits dredging within and adjoining the Great Barrier Reef World Heritage Area for the development of new, or the expansion of existing, port facilities outside a PPDA until the end of 2024. A copy of the Bill can be found here and more information about the Queensland Ports Strategy and associated initiatives can be found here.
Customs Amendment (Japan-Australia Economic Partnership Agreement Implementation) Act 2014 (Cth)
Further to our reporting in April 2014, on 28 October 2014, the Joint Standing Committee on Treaties issued its strong endorsement of the Japan-Australia Economic Partnership Agreement (JAEPA), recommending that binding treaty action be taken. Legislation needed to implement the Agreement was passed by the Australian Parliament on 27 November 2014. JAEPA is expected to enter into force in early 2015.
To the extent that Australia’s resources exports are not already tariff-free, all tariffs on energy and mineral products will be eliminated within ten years with immediate tariff elimination for coking coal, petroleum oils, aluminium hydroxide and titanium dioxide. JAEPA also raises the screening threshold from A$248 million to A$1.078 billion before private Japanese investment into non-sensitive sectors in Australia has to be considered by the Foreign Investment Review Board (FIRB). The full text of, and information about, the JAEPA is available here.
Chinese coal policies and negotiations for China-Australia Free Trade Agreement complete
In September 2014, China announced a ban on burning low quality coal in big cities such as Shanghai, Guangzhou, Beijing and Tianjin, which are all struggling with chronic air pollution. Despite predictions that the tough restrictions on coal with more than 16% ash and 1% sulphur will do further harm to the Australian coal export industry, many resources analysts argue that the majority of Australian mines produce high quality coal that already meets, or can be processed to meet, the specifications. They suggest that the ban may, in fact, benefit Australian miners by boosting demand for our “clean” coal and increasing the price discrepancy between low grade and high grade product. In this way, some commentators suggest that China’s suite of policies to reduce air pollution represents an opportunity, rather than a threat, to Australian coal producers.
A month after imposing the ban on low quality coal, China also announced that it would re-introduce import tariffs of 3% for coking coal and 6% for thermal coal. Australian Treasurer, Joe Hockey, labelled the tariffs as spiralling protectionism, however in an earlier article which can be accessed here, we noted that China’s motivations behind the tariff may be less about protecting its domestic coal producers, and more about providing political leverage with the Australian Government amidst China-Australia Free Trade Agreement (CAFTA) negotiations.
Indeed, on 17 November 2014, Australian Prime Minister, Tony Abbott, announced the completion of negotiations for the CAFTA which will remove the 3% tariff on coking coal for Australian imports when the CAFTA commences, and phase out the 6% thermal coal tariff within two years. All remaining tariffs on minerals commodities including aluminium oxide will also reportedly be eliminated. Upon the CAFTA’s entry into force, more than 85% of Australian goods exports will be tariff free, rising to 95% on full implementation. Reports suggest the CAFTA could be worth up to A$18 billion to the Australian economy over the next few years.
As with the JAEPA, the CAFTA will also raise the FIRB screening threshold for private Chinese companies in non-sensitive areas from A$248 million to A$1.078 billion. All investments by Chinese government- owned entities will continue to be scrutinised by FIRB regardless of value, consistent with Australia’s trade agreements with Korea and Japan.
Australia and China have undertaken to conduct legal reviews of the concluded CAFTA text and prepare translated versions for signature in 2015. More information about the CAFTA is available here.
BHP opens Caval Ridge Mine in Bowen Basin
On 13 October 2014, BHP Billiton opened its US$3.4 billion Caval Ridge Mine in Queensland’s Bowen Basin. The coal mine is the eighth BHP Mitsubishi Alliance project in the Bowen Basin and is initially expected to produce up to 5.5 Mt of metallurgical coal per year to supply the steel industry. BHP President, Dean Dalla Valle, said that the project will be “one of the most productive, sustainable and highly performing metallurgical coal mines in the world”. The Australian reported that the new mine was completed ahead of schedule and under budget and created 500 new jobs.
Bowen Basin Project to receive significant investment
On 4 November 2014, Stanmore Coal announced that it has secured a second tranche of exploration funding for the Belview Coking Coal Project from Taiheiyo Kouhatsu and the Japanese Government-owned mining corporation, JOGMEC. The companies have signed a second Exploration Support Agreement (ESA) which provides Stanmore with A$1.5 million to undertake resource drilling, including further drilling of core holes and associated coal quality analysis within the northern region of the Belview Project. This exploration is in addition to the program conducted early in the 2014 calendar year which utilised funding from the first Belview ESA.