With Australian billionaire Clive Palmer’s A$3 billion (NZ$3.8b) float plans in disarray, a question mark hangs over his plan to build the world’s biggest coalmine.
In four years’ time, Mr Palmer aims to start extracting millions of tonnes of coal from central Queensland grazing land that lies unoccupied, besides a few drilling rigs.
He also plans to build a 490-kilometre railway and expand ports to service the mine – named China First – which Mr Palmer has said would be the planet’s biggest.
But after last week’s confusion over a $60b export deal, some in the industry doubt that the massive project stacks up. Few will completely dismiss Mr Palmer, a renowned deal-doer who enjoys support for the project at the top of the Australian and Chinese governments.
Mr Palmer, Australia’s fifth- richest man, learned a tough lesson in public relations. After he trumpeted a record-breaking $60b coal export deal with China a week ago, the alleged buyer, China Power International (CPI) Development, denied all knowledge.
The correct buyer, state-owned CPI Holdings, eventually clarified that it had a “framework agreement” with Mr Palmer’s private company, Resourcehouse, but it has not confirmed the $60b figure.
Mr Palmer was forced to quash rumours he was looking to float Resourcehouse in Hong Kong, after failing to deny repeated rumours of a float in recent months.
But while the media swarmed on the mystery of his $60b contract, the mine at the centre of the drama has attracted far less public scrutiny.
Most of Mr Palmer’s estimated 7 billion tonnes of coal were acquired in a $140 million takeover of Waratah Coal last year. The magnate plans to spend a further $7.5b building the mine and infrastructure complex, which would be capable of exporting 40m tonnes of coal a year.
To start production by 2014, Mr Palmer needs to build a 490-kilometre railway and add a two- berth export coal terminal on crowded port facilities in Abbot Point, near Bowen.
As nearby rival companies scramble to exploit the energy and resources export boom, industry experts say building this infrastructure will be his biggest headache.
“If the Chinese do fund it then he could get the coal out, but I don’t think it will happen by 2014 – that would be an absolute miracle,” a mining executive said.
The nearby Surat Basin rail link to Gladstone is seen as much more advanced, though it will not be ready until 2012. At 210km, it would be less than half of the length of Mr Palmer’s, and the companies building it have been working on planning and approvals since 2007.
Asked if the project was worth its $7.5b price tag, some analysts struggle to see the commercial rationale for choosing the Galilee Basin, which is west of the established coal basins, the Surat and the Bowen.
“The Surat Basin’s got as much or more, and all you’ve got to do is get it out through Gladstone,” said one mining analyst. “You cannot see why you would develop the Galilee when there’s plentiful good coal in the Bowen and the Surat which is much easier to ship.”
Mr Palmer’s resource is also thermal coal, used in power stations, a less valuable commodity than the coking coal for which steel mills pay top dollar. Industry insiders say the region’s resource is of decent quality, but lower grade than the material from Newcastle or the nearby Bowen Basin coal.
A further challenge will come from the myriad government approvals needed to construct a mine, railway and port.
So far, Mr Palmer’s company has started an environmental impact statement, which it hopes to lodge in the third quarter this year.
But a Queensland government spokeswoman confirmed it had not yet secured any government approvals and had not lodged an application for a mining lease.
Sceptics doubt the massive China First mine is worth the effort. But few will write off Mr Palmer’s chances yet.
Queensland Premier Anna Bligh confirmed she had seen a contract with Chinese buyers, and has visited the mining site that Mr Palmer claims could indirectly create up to 70,000 jobs.
The federal infrastructure minister, Anthony Albanese, has also deemed it a “major project”, giving it the green light to faster approvals from authorities.
A spokesman for Mr Palmer said he remained confident of securing the necessary approvals to start building the mine later this year, as planned.
“They’re all progressing in exactly the order they need to be,” he said.
Observers also point out that Mr Palmer’s ambitious plans do not need to stand up to the hurdles for profitability that listed companies must clear. So long as Mr Palmer and his backers want to fund the project, they can do exactly that.
As Mr Palmer pointed out last week, this also removes him from rules over misleading the market on pesky details surrounding contracts.
“The money I spend is my money, the shareholder money is my money,” he said in Perth. “I can say what I want to, this is a free country, so sue me ASIC, arrest me if you think I’ve broken the law, someone make a complaint.”
Others in the industry say China’s backing is different altogether from having the support of an investor who is driven purely by profit. Unlike other investors, the argument goes, China’s state-owned companies have non-commercial goals in mind, including a strategic supply of energy for the next two decades.
And despite the Chinese company’s public rejection of Mr Palmer, sources say the Export-Import Bank of China remains interested in backing the project.
For his part, Mr Palmer remains adamant the deal is on.
By the end of this year, there should be a clearer idea of whether the magnate’s confidence in the huge project is well placed. Sydney Morning Herald
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