Deutsche Bank rules out Great Barrier Reef coal port investment: Adani, GVK port projects ‘uncommercial’ says finance expert

23 MAY 2014: Germany’s leading bank Deutsche Bank has announced that it will not invest in coal port terminals proposed by GVK and Adani at Abbot Point on Australia’s Great Barrier Reef.

An analyst from the Institute for Energy Economics and Financial Analysis (IEEFA) says that gaining financial close for any of these Galilee coal projects is becoming increasingly more elusive.

Tim Buckley, IEEFA’s Director of Energy Resource Studies Australasia said, “Deutsche Bank is a global leader in the investment banking world, so the international finance community will take significant note of this powerful signal.”

“This follows moves by the World Bank, The US Import-Export Bank and the European Investment Bank to curtail financing of coal projects, and combines with recent statements by Blackrock, the world’s largest global equities manager, about the reputational risks with respect to operating near the Great Barrier Reef,” he said.

“Global financial institutions are increasingly wary about taking any part whatsoever in financing Abbot Point coal projects – these misgivings are well founded.

IEEFA’s analysis shows these investment proposals are commercially unviable and will remain stranded for the foreseeable future given the near 50% decline in the coal price since 2011. The thermal coal industry has moved into structural decline through continued oversupply and rapidly slowing demand growth thanks to renewables.

“It has always been clear that the impact of a four hundred percent expansion of coal export capacity to over 200Mtpa at Abbot Point was going to be a serious viability risk given its proximity to the World Heritage Listed Great Barrier Reef,” Tim Buckley said.

“The fact that Deutsche Bank have said they won’t take part because of the risk to the Reef shows that the location of the Abbot Point coal port in a World Heritage Listed area is yet another major financial risk to the viability of these projects.”

Ahead of the bank’s Annual General Meeting in Germany on Thursday, over 188,000 Germans signed petitions calling on the bank to pull its investment from the developments on the grounds that it could ruin the health of the Great Barrier Reef.

The head of Deutsche Bank’s Supervisory Board, Mr. Paul Achleitner told the AGM “we are currently not involved with this project and will also not be involved with it in the future.”

Deutsche Bank Co-Chair Juergen Fitschen responded to questions by Tony Brown and others saying that “as there is clearly no consensus between the Australian Government and the UNESCO, regarding the impacts of the Abbot Point expansion on the Reef, we will not consider financial applications for an expansion of Abbot Point.”

Banktrack’s November 2013 study “Banking on Coal” reported that Deutsche Bank was one of the five largest financiers of the coal sector globally in the 2005-2013 period. However, Banktrack’s analysis also shows that in the more recent 2011-2013 timeframe, Deutsche Bank has significant curtailed its lending in this sector.

The announcement overnight builds on this momentum.

Note to Editors:

Background on the Funding for the Adani and GVK Coal Projects

Adani’s Carmichael mine and rail project involves total capital expenditures of A$16.5bn (US$15.2bn), with a significant proportion of this requiring financing prior to project commissioning. This huge expenditure is required to build a mining complex of six open cut and five underground mines with a total capacity of 40Mtpa of saleable thermal coal over the mine’s 55 year life, and 60Mtpa at peak production. The coal handling and processing plant (CHPP) will process 74.5Mtpa of raw coal in this process, and 35,000 million tonnes of overburden need to be moved.

Similarly, the GVK Group is at advanced government approval stage for two Galilee projects. The Alpha Coal project is a 30Mtpa complex of six open-cut thermal coal mines of 30 years mine life involving a capital cost of A$3.4bn, plus the associated A$3bn 495km railway infrastructure in the south of the Galilee Basin proposed by Hancock Coal Pty Ltd. Kevin’s Corner project is a A$4.2bn 30Mtpa thermal coal mine project involving three open-cut and two underground coals in the south of the Galilee Basin. These projects have a combined capital expenditure commitment of A$10.6bn.

Another key consideration in financing any Galilee coal projects is the global significance of the Galilee Basin with respect to the seaborne thermal coal market. The successful commissioning of one or more of these remote projects means the funding and construction of all the associated enabling power, water, roads, airports, rail and port infrastructure. Once built, potentially all nine Galilee thermal coal projects will be facilitated, bringing to market up to 293Mtpa of additional thermal coal supply for 30-60 years. Already in a state of significant oversupply, the global seaborne thermal coal would be flooded with an additional 35% of new capacity. With spot thermal coal prices of US$73/t already down 45% since the start of 2011, a further 35% increase in global supply could easily see prices gap down another 10-20% from already depressed levels, even assuming the second order effect of a huge round of higher cost thermal coal mine closures globally.

Given the construction of the Galilee mine and rail projects will take some three years to complete, IEEFA’s analysis suggests any commissioning by 2018-2020 is likely to coincide with China moving beyond peak coal consumption. Increasing thermal coal supply by up to 35% at a time when the world’s largest consumer of thermal coal is rapidly cutting back on imports would be doubly costly to an industry that is already sitting at best at a cash breakeven point. Australian thermal coal mines entered 2014 with an average cash cost of production of US$75-80/t.

Complicating any calculations on the viability of the Galilee coal projects is the significantly lower energy content relative to the Newcastle 6,080kcal benchmark. The Alpha thermal coal energy content is estimated at 5,640kcal net as received, while Carmichael’s coal is around 5,260kcal, 7% and 15% lower respectively than the benchmark. Carmichael coal also has an ash content of over 25%, double that Australian benchmark.

Copies of recent relevant reports can be found at the IEEFA website
http://www.ieefa.org/category/reports/ or by request.

INTERVIEWS:

Tim Buckley
M: +61 408 102 127
E: tbuckley@ieefa.org

MEDIA CONTACT:

Andrew Bradley
M: +61 403 777 137
E: andrew@holdfastcommunications.com.au