Soft coal market forces rail rethink

The weak coal market has forced promoters of a multibillion-dollar rail project in Queensland to adopt a more limited plan, with common user access, to get it off the ground.

The Hancock Prospecting-GVK partnership wants to link several coal projects it hopes to develop in the Galilee Basin in central Queensland to the Abbot Point coal port. But the downturn in steaming coal prices and demand has forced it to scale back plans amid widespread caution prices and volumes might remain subdued for some time.

As a result, initial plans to develop a dedicated rail line have shifted to establishing an open-access link that will also use an existing rail line along a large part of its route to further lower costs.

From an initial $10 billion project to ship an estimated 60 million tonnes of coal annually, the cost of the more limited plan has been put at $6 billion, with the intention of lifting line capacity and potential volumes, if and when needed.

Even with the reduced scope there is ongoing doubt when the project will get off the ground, although developing a more muted start-up option gives the project a greater chance.

Open access also means that the promoters of other coalmines in the region, such as Clive Palmer's China First project, could use the link if it goes ahead.

On Monday, Aurizon and GVK Hancock agreed initially to build only 300 kilometres of the 500 kilometres of a rail corridor the promoters sought originally.

The agreement also sees GVK Hancock abandon plans for a greenfield link from Collinsville to Abbot Point, instead using Aurizon's link between these two.

GVK and Hancock are expected to be cornerstone investors in the rail link, but with the finer points of their proposal yet to be fleshed out.

"This will also allow a phased development at the Abbot Point T3 terminal to match volumes and ramp-up, thereby materially reducing the initial cost of infrastructure," the two groups said in a joint statement on Monday.

Initially, the new line will be built to narrow-gauge specification to carry trains of up to 25,000 tonnes, with the option to consider an expansion to a full greenfield line (narrow or standard gauge) if tonnages increase sufficiently to justify the extra investment.

The link is aimed at a "staged consolidation of tonnes from multiple miners in the Galilee and the Bowen Basins", the two groups said.

Earlier this year Aurizon said it would acquire 51 per cent of Hancock Coal Infrastructure, the entity that owns GVK Hancock's rail and port projects, committing an unspecified amount of funds upfront, along with paying a deferred consideration at financial close of each phase of the projects.