Adani Enterprises to Go Ahead with $12-billion Carmichael Coal Mine

- June 8th, 2017

India’s Adani Enterprises received final investment approval for its Carmichael coal mine and railway in Australia earlier this week.

After seven years of controversies and permitting delays, India’s Adani Enterprises (NSE:ADANIENT) received approval for its Carmichael coal mine and railway in Australia on Tuesday (June 6).
The mine is expected to produce 60 million tonnes of thermal coal a year for export, and will provide fuel to generate power for 100 million Indians. Pre-construction work will start as early as next month, the company said in a statement.
After the announcement, Indian billionaire Gautam Adani said that the “final investment decision” by Adani Mining’s Indian parent represents “the official start of one of the largest single infrastructure — and job creating — developments in Australia’s recent history.”

The project, located in the remote Galilee Basin in Queensland, will create 10,000 direct and indirect jobs and will contribute $2.97 billion each year to Queensland’s economy, according to official estimates.
“The majority of coal mined will go directly to Adani-owned coal fired generation and hence establishes a new market for Australian coal,” noted Greg Evans, executive director – coal at the Minerals Council of Australia.
Despite that positivity, funding for the $12-billion coal mine, which will be the biggest in the country, has not yet been raised. And opposition from environmental activists, who believe the mine will contribute to global warming and damage the Great Barrier Reef, has led some banks, including Deutsche Bank (NYSE:DB) and the Commonwealth Bank of Australia (ASX:CBA), to refuse financial backing.
“We are still facing activists. But we are committed to this project. We are committed to regional Queensland and we are committed to addressing energy poverty in India,” Chairman Gautam Adani said.
Adani is aiming to finalize project financing by Q1 2018. The company hopes to receive a $1-billion government loan for a railway that will help other miners open up Queensland’s Galilee Basin.
In addition, some analysts have questioned the need for a new mine, as the seaborne coal market is well supplied. “Our view is that the market has enough supply already. It’s a big ask for Adani to get funding for the project, which is greenfield, far from the coast, and where there is little infrastructure in place,” said Mathew Hodge of Morningstar.

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Analysts at Wood Mackenzie have noted that Carmichael will require a minimum real 2017 benchmark Newcastle thermal coal price of $82 per tonne to break even. Costs will come down with the start of better-quality underground operations and as other projects in the Galilee Basin start up; that’s because higher volumes will help reduce rail and port charges.
“We expect Adani’s Carmichael to be the first mine to be developed in the Galilee Basin with production from Carmichael’s surface mine in 2023,” said Pralabh Bhargava, senior analyst, metals and mining at Wood Mackenzie.
The firm expects total exports from the world’s top 10 coal companies — such as Glencore (LSE:GLEN), BHP Billiton (ASX:BHP,ASX:BHP,LSE:BLT) and Anglo American (LSE:AAL) — to rise by 24 million tons per annum to 2022.
Adani Enterprises’ share price closed up 8.63 percent on Tuesday and is currently sitting at $2.03 (130.60 in Indian rupees).

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

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