The owner of one of Australia's biggest undeveloped coal deposits has dismissed claims by US-based researchers that it will be unable to develop the $10 billion project.
Indian-owned GVK lacks the financial strength to proceed with its Alpha coal project in Queensland's Galilee Basin, in part because of overcommitment in 16 ventures worth $US20 billion, the report by the Institute for Energy Economics and Financial Analysis says.
In addition, the tumbling price of thermal coal on world markets and the environmental hurdles the mine must clear mean the project is likely to be "stranded", the report, commissioned by Greenpeace Australia Pacific, says.
"As currently structured, GVK simply cannot afford to participate in the Alpha project due to its plummeting stock price, over-leverage and poor track record," said Tom Sanzillo, a co-author of the report. "The cumulative picture of cascading multiple risks and inevitable delays and cost blowouts around the Alpha project means that there is limited investment potential."
Coal prices have slumped about 30 per cent in the past 18 months, prompting big companies such as BHP Billiton and Rio Tinto to signal over the past month that they may sell some of their coal assets. GVK paid Gina Rinehart's Hancock Prospecting $US1.26 billion for the Alpha deposit in September 2011 with the price for thermal coal near its peak at $US133 a tonne. The IEEFA report said the Alpha mine would struggle to be profitable with production costs at $US70 a tonne or higher, not far off current prices of about $US80.
GVK, though, rejected the report's findings, telling its banks to expect an "activist-motivated media campaign" lasting several weeks as the mine finalises its environmental approvals.
"Our projects are financially robust, with some of the lowest operating costs in the global coal industry [$US55 a tonne free on board] and represent a very large, high-quality and new source of low-ash, low-sulphur, low-gas thermal coal," it said. It also sought to dismiss links between the performance of its listed arm, GVK PIL, and the mine, noting the development of the Galilee Basin's assets is 90 per cent owned by GVK's private investment arm.
Under the terms of its original deal, GVK bought 79 per cent of the Alpha and Alpha West projects, with Hancock retaining the remainder. It also owns all the nearby Kevin's Corner coal project and must pay 100 per cent of the rail and port development costs to get the coal to export markets.