ATEC Rail Group Ltd. is in talks with India’s GVK Group and Adani Enterprises Ltd. to buy a stake in a proposed rail link in Australia’s Galilee Basin, where about $32 billion of coal projects are being developed.
The closely held company, backed by Houston-based The Energy & Minerals Group, is also holding rail project equity stake discussions with billionaire Clive Palmer’s China-backed Waratah Coal Pty, John Balassis, managing director of the Sydney-based rail developer and manager, said in an interview.
GVK, controlled by Indian billionaire G.V. Krishna Reddy, Adani, India’s biggest coal importer, and Waratah are among global groups planning projects in the basin to meet demand for coal from Asia. The three are each pursuing their own rail projects to start shipping from 2015, while Queensland’s state government has said it favors a single corridor to the coast.
“What we’re talking to miners confidentially about is if there is a role for us to play and try and bring about some harmony between the three miners,” Balassis said. “We’re happy to become an equity investor and take some of the risk to deliver the project.”
GVK agreed in September to pay $1.26 billion to buy a 79 percent stake in two coal projects as well as 100 percent of the rail and port project from Australian billionaire Gina Rinehart’s Hancock Prospecting Pty. GVK plans to raise $7 billion of debt to help fund its $10 billion coal operation, and $3 billion by selling equity stakes, it said last month.
If all the companies in the Galilee built their own rail, it would cost each “north of $4 billion,” Jason Economidis, director of growth projects for Vale SA’s Australian unit, said last month. ATEC founded and owns one-third of the A$1.2 billion ($1.2 billion) Surat Basin rail project, also in Queensland.
“GVK does not comment on specific negotiations, but can confirm that it is considering bringing new equity investors into its integrated Galilee Basin coal project,” Michael Vaughan of FTI Consulting, a Sydney-based outside spokesman for GVK, said in an e-mail.
Mining companies are developing operations further inland as demand increases in China and India, the two fastest-growing major economies. Electricity demand in Asia, excluding Japan, will rise threefold by 2025, with thermal coal remaining the main fuel for generation, according to Royal Bank of Scotland Plc. The Galilee mines, about 500 kilometers (311 miles) from the coast, will produce mostly thermal coal.
“Miners are moving into a new paradigm -- traditionally, projects have been 100 to 200 kilometers from the coast and reasonably well-serviced by existing infrastructure,” said Balassis on Dec. 16. “A lot of these coastal assets are depleting and they’re moving into projects 300 to 400 kilometers from the coast, which 10 years ago was uneconomic because prices weren’t high enough.”
Prices rose to records this year due to flooding in Australia, the world’s biggest coal-exporting nation, and rising demand. Thermal coal prices are likely to rise over the next two years, supported by demand in Asia, Credit Suisse Group AG said in a note dated Oct. 4.
“What we’re looking to deploy in the market is a partnership arrangement with miners” bringing its rail experience and funding into the potential joint venture, said Balassis, who expects a decision next year.
The companies seeking to develop the basin, also including AMCI Capital LP, a U.S.-based private equity investor, and Vale, the world’s biggest exporter of iron ore, should build a jointly owned railway to save costs and speed development, Vale’s Economidis said last month.
Andrew Crook of Crook Publicity, an outside spokesman for Clive Palmer, owner of Waratah Coal, didn’t respond to a message left on his mobile phone. Adani didn’t respond to a message left at its offices in Australia.
ATEC’s Surat Basin project is planned to service mining companies including Xstrata Plc, with construction expected to start next year. QR National Ltd., a rail company, and Xstrata are the other owners of the Surat Basin project.
The company has access to funding “in the billions” from Energy & Minerals, ATEC’s Balassis said. EMG, as ATEC’s second-biggest investor is known, is a private investment firm managing $3.8 billion in funds, according to its website.
Queensland state government this month approved a A$9 billion expansion of the Abbot Point coal export port to increase capacity. Abbot Point will be the main exit point for coal produced in the Galilee, with a capacity of 385 million tons planned in 2017, from a current 50 million tons.