GVK-Hancock Maintain the Faith in the Galilee

GVK-Hancock (GVKH) is more determined than ever the Alpha Project, the most advanced coal project in Queensland’s Galilee Basin, will be producing its first high grade thermal coal for export markets in Q2 2015. Energy Publishing exams the project.
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Brisbane - Queensland - Australia


Dec. 6, 2012 - PRLog -- GVK, developer of India’s first independent power project and the nation’s largest private airport operator, holds 79% of the Alpha and Alpha West coal projects while Gina Rinehart’s Hancock Prospecting controls the remaining 21%. The Indian colossus also owns 100% of Kevin’s Corner coal project along with the port and rail infrastructure projects.

The company’s chief development officer, Justin Crotty, went to great lengths at the recent Major Projects Conference in Brisbane to soothe doomsayers who are adamant the development of the Galilee remains unviable in the present market.

“We calculate our production cost over the 30-year life of the mine will be less than $55/t FOB, straddling the border between the first and second quartiles of the global cost curve for all thermal coal mines around the world,” he said.

“This makes Alpha one of the most efficient mines in Australia and at current spot prices only 2-3 Australian thermal coal mines are cash flow positive. The likelihood of Alpha being developed remains in the highest probability bracket.

“Markets overshoot and undershoot but the fact of life is quality projects like Alpha that sit in the first quartile of the cost curve are nearly always developed.

“Our faith in the longer-term fundamentals of coal is rock solid. GVKH expects short term relative oversupply conditions will be resolved by the second half of 2013 as the seaborne thermal coal market reverts closer to those fundamentals.

“The short-term relative oversupply, caused in the main by ‘displaced’ US production being diverted from the domestic market to the Pacific Rim as shale gas exerts downward pressure on prices, is exacerbated by opportunistic buying and restocking by key Asian utilities.”

Crotty argues the current coal market as being at a “pincer point” where mines will be forced to cut back production, as has happened in the US, due to lower gas prices displacing coal in the yavch merit order as a power fuel.

"The economic position of many current thermal coal producers has been artificially propped up by Japanese supply contracts, paying up to $114/t, allowing them to defer any decisions to reduce production and costs,” he points out.

“These contracts are expected to roll off at the end of the first quarter of 2013 and we do not expect a price recovery to be captured in spot prices until the third quarter of 2013. We see prices moving closer to $100/t (Newcastle 6,322kcal/ kg) at that time and plateau for two years after that.

“The next stage of market evolution is expected to occur in 2015-16 as planned coal-fired generation capacity comes on line and the coal bulls well and truly return to the market.

“Our calculations show ‘switching’ from coal to gas loses all of its appeal as the Henry Hub gas price, currently at US$3.90 per million BTU, approaches the $4.30 level as it is destined to do in a reasonably short time.”

GVKH’s development guru gave short shrift to bearish doubters who spread “the myth that coal demand will not be sufficient to accommodate long term supply”.

“Coal is fundamental to global energy security and all statistics point to it remaining a major fuel source of power generation,” he reasons.

“World thermal demand will more than triple in volume by 2030, bolstered by demand from China and India. Seaborne coal demand is conservatively estimated to grow at 5.5% CAGR over the next 20 years.

“We have already received letters of intent, MOUs and offtake commitments to take care of 43Mtpa of Galilee coal from the mine’s inception.”

The CDO argues the demand reflects the quality of the Alpha product. “When benchmarked against competing coal products from NSW, Queensland, Indonesia and China as delivered to a Japanese power station Alpha coal exhibits a high value-in-use,” he said.

“Alpha’s coal exhibits a value-in-use (figures in US$/GJ FOB) which is more competitive than seven other Australian coals whereby Alpha’s higher value-in-use coal produces the lowest electricity cost.

“The coal handling and processing plant (CHPP), the largest of its type in the southern hemisphere, will process up to 40Mtpa from Alpha’s open cut to produce 30Mtpa of export thermal coal on a 100% washed basis.”

Energy Publishing Asia Pacific is a Brisbane-based internationally renowned publisher of leading coal industry publications and reports covering Asia Pacific and the Americas.This article was first reported in Australian Coal Report, 28 November 2012.  In addition to the weekly Australian Coal Report, our publications include the weekday Inside Coal, weekly China Coal Report, Coalfax, Indian Coal Report, South African Coal Report, and the monthly Indonesian Coal Report and importantly, we also deliver key market price indicators for all regions, including the Newcastle Export Index (NEX) and the world's first Coking Coal Index as well as a Database of Prices & Indices.

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