Rio Tinto Australian Expansion Plan Rejected by Judge

Rio Tinto Group (RIO)’s plan to expand a coal mine in the Australian wine-growing region of Hunter Valley was rejected by a judge, overturning a government approval.

New South Wales Land and Environment Court Justice Brian Preston today upheld an appeal of the government approval by residents of Bulga, a village northeast of the Warkworth mine, who complained about environmental impacts including noise and dust emissions. Coal & Allied Industries Ltd., a unit of Rio Tinto, planned to extend the operation’s life and expand the area the London-based company is mining.

The judge rejected the world’s second-biggest mining company’s expansion plan on the basis of “the significant, adverse, biological diversity, noise and dust, and social impacts of the project.”

“This would be a disappointment for Rio, given that they’ve been looking to extend the mine life to around 2030 and possibly expand production,” Paul McTaggart, a Sydney-based resources analyst with Credit Suisse Group AG, said by phone.

Australian environmental groups are stepping up efforts to discourage coal mining in some parts of the country, the world’s biggest source of the commodity. Coast and Country Association of Qld Inc. said it filed a complaint in February to block a plan by GV Krishna Reddy’s GVK Group and Gina Rinehart to build a $10 billion coal mine, port and rail project, while environmentalists last year failed in a bid to block Xstrata Plc (XTA)’s construction of the Wandoan coal mine in Queensland.

Bulga Win

“This is a huge win for the community of Bulga, which would have been all but wiped off the map by this coal mine,” Steve Phillips, Hunter regional coordinator of the environmental group Lock the Gate Alliance, said of today’s ruling in a statement posted on the group’s website.

Coal & Allied Industries, a unit of Rio Tinto, said the court ruling shows the planning process in New South Wales is failing to deliver timely and predictable outcomes.

“This outcome is a blow to our plans for the Mount Thorley Warkworth mine and the jobs of the 1,300 people who work there,” Darren Yeates, Coal & Allied’s acting managing director, said in an e-mailed statement. “It is also a setback for hundreds of suppliers across the Hunter Valley and New South Wales.”

Rio Stake

Rio Tinto, which together with Mitsubishi Corp. (8058) bought out the minority holders in Coal & Allied in 2011 for A$1.53 billion ($1.6 billion), has hired Deutsche Bank AG to help reduce its interest in the venture to as low as 51 percent from 80 percent, the Wall Street Journal reported April 3, citing unidentified people.

The company will review the the court’s decision to determine its options, Yeates said.

Warkworth Mining, also a unit of Rio Tinto, has operated the Warkworth mine since 1981. The company sought to expand production and extend its life, as rising coal prices have turned areas previously considered uneconomic into profitable ones, according to the judgment.

Warkworth has a permit to operate the existing mine until 2021 and sought to extend it to 2031. The mine has a production capacity of 10 million metric tons of thermal coal, Rio said on its website.

The expansion would create about 44,000 direct and indirect jobs and provide a A$16 billion boost to the Hunter economy, according to a study presented in court.

The judge rejected the economic analysis saying he wasn’t satisfied “that the economic benefits of the project outweigh the environmental, social and other costs.”

The case is Bulga Milbrodale Progress Association Inc. v. Minister for Planning and Infrastructure. 2013/NSWLEC48. Land and Environment Court New South Wales.

To contact the reporters on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net; Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

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