Coal in the Galilee Basin: Is Something Rotten in the State of Queensland?

At the beginning of November, the big news in the coal sector was the approval of Kevin’s Corner, a giant Queensland-based coal project that is to be operated by Hancock Coal, a company owned by Australia-based Hancock Prospecting and India’s GVK.

While the news is exciting for a number of reasons — not least because the mine is the first to be approved since the federal government’s instatement of a new water trigger rule — what is perhaps more interesting is the debate that has since sprung up about the state of the coal industry in the Galilee Basin, where Kevin’s Corner is situated.

Incentives for Galilee Basin miners?

Located in Western Queensland, the Galilee Basin “contains a large inferred resource of mostly high-volatile, low sulfur thermal coal,” as per Platts. However, it is 500 kilometers away from the nearest port, and many companies operating there — Adani Enterprises (BSE:512599) and Bandanna Energy (ASX:BND), to name a couple — have found their progress slowed by poor coal prices, lack of funding and problems gaining state and national approval.

Soon after the announcement about Kevin’s Corner, Campbell Newman, Queensland’s premier, revealed that the state is considering helping out troubled miners in the area. Namely, it may offer incentives — such as lower state royalties and port access — to companies that want to develop coal mines in the Galilee Basin.

“We will do all we can to facilitate the projects proposed for the Galilee Basin. We’re going to reserve access to valuable port land and access to Abbott Point (port) for the first mover so they have surety about getting their product to market efficiently,” Reuters quotes Newman as saying. More specifically, the document containing the news states that first movers will be offered “a ramp-up to full royalty for an initial period, on the normal royalty payable and based on a sliding scale,” Platts reported.

Further, a recent article published by The Guardian notes that, according to the document, Newman’s government is also thinking of letting mining companies force landowners to give up their land so it can be used to build a railway line to move coal out of the Galilee Basin. “Importantly, the government recognises that significant delays to projects can occur as private sector developers face difficulties acquiring the land needed to develop railway corridors over significant distances, and that compulsory land acquisition may be required,” it states.

In Newman’s opinion, the idea has many positives, with the main one being that it will help unlock the Galilee Basin’s vast potential. He also believes it will create thousands of jobs.

Opposition

Of course, not everyone agrees with him. Unsurprisingly, environmental groups have come forward to lambaste the plan — Greenpeace’s Louise Mathieson, for example, is quoted by ABC News as saying the government’s plan to help out Galilee Basin miners shows that the mines are not viable. “They won’t get off the ground without taxpayer subsidies and special treatment from the State Government,” she said.

That concern has also been expressed by Felicity Wishart, Great Barrier Reef campaign director for the Australian Marine Conservation Society. She told The Guardian that to her, the tax breaks suggest that “the companies’ projects are not financially viable on their own, which could mean the region might not get the economic benefits they’re being promised.” She also said her organization is concerned that increased shipping of coal from Galilee will negatively impact the reef.

What’s a little more surprising is the fact that criticism has also come from the mining sector. The Guardian notes that Clive Palmer, “whose 2009 proposal for the region — China First — included open-cut and underground mines as well as plans for a railway,” has expressed distaste for the plan — though his seems to stem at least partially from the fact that China First was passed over.

“Nothing is happening in central Queensland, there is no infrastructure and the government needs to reconcile with all parties with projects proposed for the Galilee Basin,” he said in a statement, also accusing the government of giving favorable treatment to Kevin’s Corner. “Mr Newman needs to come back to Waratah Coal to get the China First project moving forward.”

The upshot

All in all, the Newman government’s announcement, along with the responses to it, seems to raise more questions than it answers. The main one, of course, is whether helping coal companies working in the Galilee Basin will really provide the benefits that the Queensland government has outlined. That question is especially relevant given the troubles, including cost cutting and lay offs caused by low coal prices, that have been affecting Australia’s coal sector of late.

As the coal sector waits for the smoke to clear, those interested in investing in Galilee Basin-focused companies might consider keeping an eye out for any new announcements from Queensland’s government, as well as comments from the companies working there.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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