SYDNEY // 2 December, 2014: The acquisition of Griffin Coal by Lanco Infratech at the peak of the coal boom is at serious risk of becoming a stranded investment with potential negative impacts on investors, Western Australian taxpayers and the local community of Collie, according to Tim Buckley, Director of Energy Finance Studies, Australasia, for the Institute for Energy Economics and Financial Analysis (IEEFA).

Mr. Buckley has spent many years studying the economic viability of energy projects and companies, and says that “the acquisition of Griffin Coal at the height of the coal boom is likely to leave another stranded asset out west.”

Analysis by IEEFA of Lanco Infratech’s financial position indicates that Lanco Infratech’s local subsidiary, Lanco Resources Australia Pty Ltd. faces a likelihood of insolvency in early 2015.

“Requests for public subsidies to prop up the business are unlikely to have a material sustained impact on the underlying financials of the business and should be resisted by policymakers.

“Three Indian power and infrastructure conglomerates (Adani, GVK and Lanco Infratech) all invested in Australian coal mining projects in 2011, which has proved with hindsight to have been the peak of the global coal boom.

“All three Indian firms were already financially leveraged and yet used almost entirely debt financing for their Australian acquisitions. All three paid very full prices. Since that time the seaborne coal price has fallen more than 50% and listed coal company share prices in the main have fallen by 60-90% in this period,” Mr Buckley said.

“Each of the three project proposals have a questionable level of commercial viability and have faced a series of delays, yet politicians are now calling for taxpayer subsidies for yet more foreign corporate welfare.

“IEEFA has evaluated this case study given that Griffin Coal provides yet another example of the mounting issues facing the Australian thermal coal export industry. Seaborne thermal coal has entered structural decline. It is past time for the industry to accept that flooding the export market with ever higher export volumes will only serve to further depress an oversupplied market at a time when thermal coal demand growth is significantly lower than industry expectations.

“Mine rehabilitation costs have once again been ignored in the planning and approval process, leaving a potential major taxpayer burden. Local community needs likewise are now being impacted by the absence of any long term economic transition plan,“ Mr Buckley said.

Tim Buckley is the Director of Energy Finance Studies, Australasia for the Institute for Energy Economics and Financial Analysis. He has 25 years of financial markets experience, including 17 years with Citigroup culminating in his role as Managing Director and Head of Australasian Equity Research. Mr Buckley has spent the past five years investigating trends in global renewable energy and energy efficiency trends.

The report is available at the IEEFA website