GVK rejects claim Alpha coal project is 'stranded'
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 major 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.
Frequently Asked Questions about this Article…
The Institute for Energy Economics and Financial Analysis (IEEFA) told investors the Alpha coal project faces a high risk of becoming a stranded asset. The report said GVK may lack the financial strength to develop Alpha because it is overcommitted across 16 major ventures worth about US$20 billion, and that tumbling thermal coal prices plus environmental hurdles increase the likelihood of delays, cost blowouts and limited investment potential.
GVK rejected the IEEFA findings. The company told its banks to expect an "activist‑motivated media campaign" as environmental approvals are finalised, said its projects are "financially robust," claimed some of the lowest operating costs in the global coal industry (about US$55 a tonne FOB) and sought to downplay links between the listed arm (GVK PIL) and the private‑owned parts of the Alpha development.
Under the original deal GVK bought 79% of the Alpha and Alpha West projects, while Hancock Prospecting retained the remainder. The article also notes the Galilee Basin development is around 90% owned by GVK's private investment arm, rather than its listed vehicle.
GVK paid Gina Rinehart's Hancock Prospecting about US$1.26 billion for the Alpha deposit in September 2011, at a time when thermal coal prices were near their peak (around US$133 a tonne).
The IEEFA report said Alpha would struggle to be profitable if production costs are US$70 a tonne or higher. At the time of the article, thermal coal prices had fallen to about US$80 a tonne, while GVK argued it could operate at roughly US$55 a tonne FOB — figures investors should weigh when assessing project economics.
The article states GVK must pay 100% of the rail and port development costs required to get coal from the Galilee Basin to export markets — a significant capital and project‑execution consideration for investors.
Thermal coal prices had slumped about 30% in the prior 18 months, prompting major miners such as BHP Billiton and Rio Tinto to signal they may sell some coal assets. These market moves and lower coal prices can affect commodity demand, project valuations and investor sentiment about large new coal developments like Alpha.
Environmental hurdles are a core part of the risk profile cited by the IEEFA report — potential delays or stricter conditions can increase costs or push timelines out. GVK itself warned banks to expect an activist‑motivated media campaign while the mine finalises environmental approvals, highlighting reputational and regulatory risks that everyday investors should monitor.
Call 1300 880 160
Start a chat
Schedule a call
