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Standing up for coal – Abbott and Newman give investment advice

Tony Abbott has told a G20 leaders’ discussion on energy he was “standing up for coal” as the Queensland government prepares to unveil new infrastructure spending to help the development of Australia’s largest coal mine.

Abbott, who recently said coal was “good for humanity”, also endorsed the mine, proposed by the Indian company Adani, to the meeting.

The Australian government has given all environmental and regulatory clearances for the $7.5 billion coal mining, rail and port project, said Gautam Adani, chairman, Adani Group, in an interview to The Indian Express.

And Campbell Newman is happy to put your money where his mouth is.

“We are prepared to invest in core, common-user infrastructure,” Mr Newman said.  “The role of government is to make targeted investments to get something going and exit in a few years’ time.”

Despite poor market conditions, high costs and the massive outpouring of concern over the environmental impacts of their projects, Indian companies GVK and Adani remain hell-bent on opening up the Galilee Basin in Queensland. The smallest mine is as large as Australia’s biggest operating coal mine and the largest, twice the size. All of the proposals in the Galilee Basin would produce enough coal to chew up 7% of the world’s remaining carbon budget, drastically reducing our chances of keeping a lid on global warming.

Adani and fellow Indian company GVK are pushing their projects and Adani wants to start construction early next year, but the key problem is access to funds.

Few banks are willing to lend when coal prices are so low and the industry is facing issues with climate change.

There are also issues with both companies.

Adani Mining Pty Ltd borrowed $516 million from another subsidiary of the Adani Group, Adani Minerals, at an interest rate of 4.25%.  Adani Enterprises, the parent group, borrowed from the banks 2 per cent more cheaply that it charges Adani Mining the subsidiary in Australia for internal loans.

Why would these loans be priced so far above commercial rates?  Potentially they could rack up losses in Australia and rip out equivalent profits to India. Some $10 million a year thereby transferred – 2 per cent on $516 million – tax free to the subcontinent.  Rupert would be proud.

Adani Mining P/L had no revenue and booked a pre-tax loss of $112 million in 2013-14. It spent $75 million on exploration and evaluation of the mining area, which was capitalised, along with $41 million of interest, into the balance sheet rather than expensed against the profit and loss.

Adani Mining’s red ink of $112 million mostly relates to currency losses. All loans are in US dollars with no hedging, giving rise to a loss every time the Australian dollar declines

The total investment so far by the Adani group in Adani Mining is now $984 million and shareholder equity is negative to the tune of $45 million which reflects net borrowings of $1.015 billion in this Australian subsidiary alone.

So we have a company with $1 billion in debt, negative shareholders funds, zero revenue and high cash burn with $15 billion still to spend, and the parent company, Adani Enterprises, has debts of $US12 billion.

Tim Buckley, director at the Institute of Energy Economics and Financial Analysis, puts it bluntly: “This project is not commercially viable”. Apart from the financial deficiencies of the main participants, he says thermal coal is in structural rather than cyclical decline.

In another red flag, Linc Energy accepted $155 million from Adani a couple of months ago for its option in the project. It is worth asking why Linc boss Peter Bond would sell a royalty of $2 billion over 20 years – perhaps worth $600 million today – for just $155 million.

And then there’s GVK.

Despite claiming to be a “leading global infrastructure owner, manager and operator” GVKPIL has no experience operating any business outside of India. It has never successfully built and operated a coal mine – in India or otherwise. GVKPIL has not operated any business in Australia, let alone a US$10bn greenfield project in the face of massive environmental, operational, logistical and financial challenges.

GVKPIL is currently committed to 16 greenfield infrastructure projects across six different asset classes.  Many are behind schedule and / or over budget.

With a market equity capitalisation of only US$243m, GVKPIL is carrying on-balance sheet net debt of US$2.8bn.  It’s share price is at an all time low and has underperformed the Indian index by 80% since 2010.

Building Australia’s largest black thermal coal mine in the untapped Galilee Basin would challenge experienced operators, but the combination of an inexperienced developer, slack demand globally for thermal coal and a deteriorating cost of production scenario in Australia moves the project beyond speculative.

Gina Rinehart’s Hancock Prospecting sold a majority stake in two Galilee coal prospects – Kevin’s Corner and Alpha – to GVK in 2011 under a deal believed to include a $1.3 billion upfront payment and a requirement for a $1 billion payment later on. However, the latter payment is still unresolved more than three years on, with Hancock Prospecting listing the unpaid amount at $656 million in its 2013 financial accounts.  Apparently they can’t afford to pay.

That asset was written down to nothing in Hancock Prospecting’s 2014 financial accounts, which were published by the Australian Securities and Investments Commission on Friday.

“The carrying amounts of the financial assets relating to a coal transaction with GVK … is based on the ability of the purchaser, GVK, to complete the outstanding transaction conditions, which includes the payment of substantial amounts,” the company wrote. “Management believes it is increasingly unlikely that these accounts will be received from GVK.”

According to The Institute for Energy Economics and Financial Analysis, GVK‘s Alpha project appears likely to remain “stranded in the valley of death”.

Six of the top ten and nine of the top twenty coal funding banks have now stated that they don’t plan to fund the expansion of Abbot Point.  Given the global scale and Australian focus of Galilee Basin projects, the Big Four banks in Australia (Commonwealth Bank, Westpac, ANZ Bank and National Australia Bank) will be critically important to the financing of this multi-billion work.

So far, the banks have been coy about saying anything about the proposals to expand coal exports through the Great Barrier Reef, falling back on sustainability policies that have, in recent years, seen them lend nearly $20 billion to fossil fuels. It has created an absurd situation where banks headquartered in Paris, London, and New York are doing more to stand up and defend the Reef than Australian banks.

It is already costing the banks. Several thousand customers have so far joined the rapidly growing divestment movement, moving to other banks in protest of the big four’s massive lending to the fossil fuel industry. And thousands more, worth hundreds of millions of dollars, sit in waiting, ready to shift their business based on whether the Australian banks will stand up and defend the Reef or fund its demise.

Rather than taking investment advice from Abbott and Newman, it’s time for us all to let our banks know what we Australians want.

35 comments

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  1. Kaye Lee

    One wonders why Newman is keen to bail out financially strapped Indian companies that the banks don’t want to touch yet we refuse to back Australian industries (other than fossil fuel producers).

  2. Loz

    As if it couldn’t get an worse. Newman and Abbott and that so called environment minister should be arrested for their destructive deals.

  3. nettythe1st

    I’ve divested from Westpac and moved to Bendigo Bank on the basis that Westpac still invests in fossil fuels and is continuing to invest in developments along the coast of the Great Barrier Reef. Bendigo Bank does not invest in any industries associated with fossil fuels.

    Here is an excerpt from a letter to me from Westpac:

    “We are closely monitoring the UNESCO review decision around the status of the Great Barrier Reef as a World Heritage site and ongoing discussions on a negotiated way forward for managing infrastructure development along the coastline in a sustainable manner.”

    There is nothing ‘sustainable’ about developing coal mines in the Galilee Basin, dredge dumping on and increased shipping traffic through the Great Barrier Reef.

  4. Kaye Lee

    Well done netty. I moved my business to Bendigo too.

  5. nettythe1st

    Good one Kaye Lee 🙂 People power!!

  6. John Fraser

    <

    @Kaye Lee

    Adani has been running …. what I call "newman LNP promotional advertising" ….. tv ads here in Qld for about 4 months supposedly spruiking themselves, but why would they do that when they know how much opposition they have, why wouldn't they just keep their heads down and get on with it, unless they knew they needed newman's LNP support.

    The moron Abbott and the simpleton newman have built all their "dreams" on coal ….. and that's all they've got, so they have to defend it to the end, a kind of doomsday scenario.

    Or do I mean M.A.D. ?

    http://images.forwallpaper.com/files/thumbs/preview/18/182978__mad-magazine_p.jpg

  7. Kaye Lee

    John,

    Every cent they spend on advertising is less that they have to actually make this venture a reality. Financial institutions aren’t swayed by advertising but obviously Newman and Abbott are. Is there any hope that you Queenslanders will see sense and get rid of this ignorant upstart?

  8. John Fraser

    <

    @Kaye Lee

    Are you talking about the same Queensland i'm talking about ?

    The one where 500 turning out for a protest march is considered a good turn out ….. in a city of 1 and a half million.

    The State where newman hops up in parliament for his maiden speech and praises Joh.

    The State that turns over public land to the Broncos ….. well I suppose that one doesn't count because Abbott also handed over a couple of million $s of taxpayers money.

    Are we on the same page here Kaye Lee ?

  9. Kaye Lee

    I live in hope John.

    Meanwhile, around the world they are laughing at us.

    From the Los Angeles Times…

    “For Australians it’s not so bad – most of the time – to be so far away, so overlooked, so seemingly insignificant as to almost never factor in major international news. The lifestyle makes up for it.

    But occasionally, there’s an awkward, pimply youth moment so embarrassing that it does sting. Like when 19 of the world’s most important leaders visit for a global summit and Prime Minister Tony Abbott opens their retreat Saturday with a whinge (Aussie for whine) about his doomed efforts to get his fellow Australians to pay $7 to see a doctor.”

  10. diannaart

    Representative democracy is no longer working (if it ever really did). At least half of Australia’s population did not vote for anything that Abbott represents, the remainder just does not appear to be able to think beyond 16 years or so ;(

    Time for direct democracy – takes longer in some ways to reach a decision – although looking at Hockey’s budget failure RD isn’t all that fast either.

    “Direct Democracy can be defined as a form or system of democracy giving citizens an extraodinary amount of participation in the legislation process and granting them a maximum of political self-determination. ”

    http://direct-democracy.geschichte-schweiz.ch/

  11. John Fraser

    <

    Abbott thinks they will support him.

    No brains.

    No guts.

    Just an arsehole.

  12. keerti

    Diannaart…direct democracy while it is a wonderful idea in theory is still apt to the same mind controlling BS that got us the mindless bunch of morons. Switzerland, which has DD, still produces decisions under DD which are as anti the benefits of the majority as our own “democratic” governments! The real problem is the “news/mindcontrol” given by the media.

  13. Kaye Lee

    The final G20 communique includes a significant passage on climate change after “difficult discussions” among leaders on Sunday, and despite an impassioned defence of coal and fossil fuel industry by Prime Minister Tony Abbott.

    After much wrangling, the final leaders’ communique includes a recommendation for nations to commit funds to the UN’s Green Climate Fund that Prime Minister Tony Abbott opposes.

    According to sources, a clear majority of leaders – including US president Barack Obama – argued for stronger language in the communique on climate change, to the apparent chagrin of Mr Abbott.

    Mr Abbott gave an impassioned defence of coal and, reportedly, argued against inserting a line in the communique recommending the abolition of fossil fuel subsidies, an objective of the G20 for many years.

    Mr Obama is understood to have spoken forcefully against Mr Abbott’s position on fossil fuel subsidies. The final communique calls on G20 members to “rationalise and phase out inefficient fossil fuel subsidies”.

    “The most difficult discussion was on climate change,” an EU official told reporters on condition of anonymity, Reuters reported.

    “This was really trench warfare, this was really step by step by step. In the end we have references to most of the things we wanted.”

    The communique included references to taking practical measures to combat global warming and an explicit endorsement of the climate fund.

    Read more: http://www.smh.com.au/business/g20/climate-change-in-g20-communique-after-trench-warfare-20141116-11no3q.html#ixzz3JGQsmQDM

  14. Kaye Lee

    And just in case you need any reminding of how the Murdoch press will distort the truth…..

    “TONY Abbott has foiled Barack Obama’s attempt to hijack the G20 with climate change, refusing to put a cent into the US President’s push for a $10 billion global green climate fund.

    And as chair of the G20, he succeeded in ensuring global economic growth and job creation was at the top of the final declaration yesterday, delivering a blow to Mr Obama’s attempts to elevate climate change to a first order issue of the world leader’s meeting.

    In one of the rare instances of an Australian leader standing up to a US President on a major policy issue, Mr Abbott refused to allow the final communiqué to include a binding requirement that all G20 nations commit to the Green Climate Fund announced by Mr Obama on Saturday at University of Queensland.

    Several Australian officials, however, said privately that it had been “discourteous” of the US President to grandstand on the issue as a guest in Australia — this year’s host of the G20.

    But The Daily Telegraph can reveal Mr Abbott told world leaders behind closed doors at the G20 summit yesterday that he would “stand up for coal” during a robust debate on climate change.

    He stared down the world’s most powerful leaders to fight for Australia’s $60 billion industry.

    And he refused to give Mr Obama a commitment to contribute funds to the “climate bank” which would assist poor nations combat climate change — a fund he once described as “socialism masquerading as environmentalism”.”

  15. Erotic Moustache

    Aside from being sickeningly manipulative, the current Adani ads are curious in that they end with a political authorisation notice (or what appears to be the equivalent of that). Since they’re ostensibly selling themselves to the community as a company, I find that most interesting. I’d be curious as to what regulation forces them to do it.

  16. guest

    Mixed messages must be causing some confusion in the community. We have some in The Oz rag saying how Obama has “blindsided” Abbott with a deal with China and the need for action on Climate Change. But one commentator tells us Abbott finished te G20 with “style”.

    And so Campbell Newman is “blindsided”as well, with his talk of targeted infrastructure of the black coal kind and its threats of pollution on land and in the sea (more specifically, in the Great Barrier Reef). So we export our emissions and deny that they are our problem.

    Meanwhile, world class Climate Change experts of the Maurice Newman kind tell us that in China we can see the pollution but it is not the result of CO2, which is a colorless, odorless gas, you know. And we are led to believe that China will never honour its deal with the USA because China has only some 3% renewables and will build more coal-fired generators of better technology. As Chief Business Adviser, this Newman knows what to say to Abbott and that other Newman even if it is not true..

    How do these people survive with their heads deep in the sand?

  17. townsvilleblog

    The recalcitrant LNP continuing to make Australia the laughing stock of the world.

  18. Kaye Lee

    When Tony said this summit was all about jobs I didn’t realise he meant Chinese jobs. Great work Andrew Robb, it’s not like we have any unemployment here or anything.

    “The Abbott government has given ground on labour, agreeing to a new case-by-case mechanism for Chinese investors to apply to bring in workers at Australian wage rates in areas of skills shortages.”

  19. John Fraser

    <

    @Kaye Lee

    This is what the 2013 newman LNP commissioned Report had to say about the Great barrier Reef and its value to Australia :

    http://www.environment.gov.au/system/files/resources/a3ef2e3f-37fc-4c6f-ab1b-3b54ffc3f449/files/gbr-economic-contribution.pdf

    This is what is being reported today in Queensland :

    http://www.sunshinecoastdaily.com.au/news/qld-help-build-rail-line-galilee-basin-coal-miners/2454992/

    I have cut and pasted sections of your Article and posted them under Comments to APN Media.

    I trust you and The AIMN will forgive me for not giving the Link, because it would have meant chopping parts out to enable the comments to be made, and I wanted to keep the integrity of your research in one piece.

    Thank you Kaye Lee for this well researched Article.

  20. Erotic Moustache

    “Despite the stalled nature of the Galilee Basin projects, several proponents continue to make public statements that the coal industry is actively pursuing the opening up of the Galilee thermal coal basin. These assertions have prompted us to examine the potential for major financiers to support greenfield Australian coal projects. We believe reaching financial close is an increasingly difficult hurdle given that these projects are commercially unviable, that they require enormous capital investments, that they involve relatively low-quality thermal coal, that seaborne coal prices are depressed, and that there is none of the necessary infrastructure required to support the development. Working from Banktrack’s November 2013 report vii and more recent filings, this briefing note offers some perspective by exploring who the major financiers of coal projects in Australia have been.”

    http://www.ieefa.org/wp-content/uploads/2014/10/IEEFA-briefing-Galilee-Financiers.pdf

  21. Kaye Lee

    No problem John,

    I just added this….

    New research by the Carbon Tracker Initiative (CTI) today identifies major financial risks for investors in coal producers around the world, from the domino effect of slowing demand growth in China, where thermal coal demand could peak as early as 2016.

    CTI’s latest analysis highlights $US112 billion of future coal mine expansion and development that is excess to requirements under lower demand forecasts. In particular it shows that high-cost new mines are not economic at today’s prices and are unlikely to generate returns for investors in the future. Companies most exposed to low coal demand are those developing new projects, focused on the export market.

  22. John Fraser

    <

    @Kaye Lee

    Good reading and passed on to Apn Media under the pseudonym johnx74.

    Girding my loins for the usual … "its a Greenies site".

  23. O'Bleak

    Where did this prick Newman get the idea he has a mandate to throw taxpayers money at a foreign company’s attempt to cobble together this atrocious bloody mine. Seems we’re to flog off public assets left, right and centre to help Adani exploit our natural resources so they can pollute the planet and generate profits for the Indian economy whilst shafting us through massive tax avoidance. Hope the domestic renewable energy sector are noticing how money appears so magically when big coal calls. The LNP are beneath contempt.

  24. John Fraser

    <

    @Kaye Lee

    Thanks 927.

  25. Pingback: BREAKING: Coal to replace currency | A fictional take on the news

  26. Kaye Lee

    “Construction of Australia’s largest ever mine will be well underway before its impact upon the environment is known, with a requirement to replace critically endangered habitat razed by the project pushed back by two full years after a backdown by the federal government.

    Documents seen by Guardian Australia show that the government scaled back its initial environmental conditions for the Carmichael mine in central Queensland following a request by Adani, the proponent.

    The changes effectively mean the $16.5bn mine’s impact on crucial groundwater supplies, beyond the 297bn litres it will extract from aquifers, will be largely unknown until the project is at an advanced stage.”

    http://www.theguardian.com/environment/2014/nov/18/carmichael-mine-environmental-impact-unknown-for-years

  27. Kaye Lee

    The Chinese government announced Wednesday it would cap coal use by 2020. The Chinese State Council, or cabinet, said the peak would be 4.2 billion tonnes, a one-sixth increase over current consumption.

    This is a staggering reversal of Chinese energy policy, which for two decades has been centered around building a coal plant or more a week. Now they’ll be building the equivalent in carbon-free power every week for decades, while the construction rate of new coal plants decelerates like a crash-test dummy.

    The 2020 coal peak utterly refutes the GOP claim that China’s recent climate pledge “requires the Chinese to do nothing at all for 16 years.” Indeed, independent analyses make clear a 2020 coal peak announcement was the inevitable outcome of China’s game-changing climate deal deal with the U.S. last week, where China agreed to peak its total carbon pollution emissions in 2030 — or earlier.

    http://thinkprogress.org/climate/2014/11/19/3593567/china-climate-target-peak-coal-2020/

  28. John Fraser

    <

    @Kaye Lee

    The Indian National Stock Exchange wants a "please explain" from Adani, in relation to the $1 billion "loan".

    http://www.brisbanetimes.com.au/business/mining-and-resources/national-stock-exchange-of-india-quizzes-adani-on-loan-for-galilee-basin-coal-project-20141119-11pnrf.html

    newmans gang offers "hundreds of millions not billions" to Adani ….. could that be $999,999,999,999 ?

    http://www.brisbanetimes.com.au/queensland/well-do-what-it-takes-in-galilee-basin-seeney-20141117-11o6zb.html

    Kay Lee your Articles in relation to this have been exceptionally accurate and all owe a debt of gratitude to you.

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  32. john921fraser

    Looks like the ABC is …. almost ….. catching up with Kaye Lee and The Aim Network.

    Here’s Australia’s erstwhile Resources Minister throwing a dead cat on the table …… about 7 times actually, but fortunately Kim Landers stuck to her guns :

    http://www.abc.net.au/am/content/2016/s4596224.htm

  33. Pingback: Tony Abbott has told a G20 leaders’ discussion on energy he was “standing up... — Political News

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