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Carmichael coal mine deeper in doubt as NAB, LG walk away

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National Australia Bank has become the 14th major financial group – and the second of Australia’s Big Four banks – to rule out funding the development of a mega-coal mine in Queensland’s Galilee Basin, proposed by Indian mining group Adani.

NAB confirmed on Thursday that it had no role in financing the Carmichael coal mine or associated port and rail expansions, and no plans to get involved. It follows the Commonwealth Bank, which in August abandoned its role as financial advisor for the project.

galilee

NAB’s comments come just one week after federal Treasurer, Joe Hockey, hinted that the Coalition was considering a taxpayer-funded loan for the rail line from Abbot Point port to the Carmichael coal mine, which the Abbott government has repeatedly described as “economically vital” to Queensland.

“One of the things they are looking at is how we can ensure that the railway line remains financially viable. I can’t give away too many details, but we are working away at that,” Hockey told ABC radio last Monday.

But the Carmichael coal project has been growing less viable by the week, mired in the approvals process while its business case is rapidly eroded away.

A total of 14 international banks have either pulled out of the project or, like NAB, ruled out becoming involved. The most recent, the UK’s Standard Chartered, said in August that both parties – the bank and Adani – had agreed to end the bank’s role in the coal mine after an ongoing review of its feasibility and delays.

And in August, the project’s prospects received another major blow when the federal government’s environmental approval of the coal mine was overturned by the Federal Court.

Mostly, however, it is the project’s shaky economic prospects, in a rapidly changing global energy market, that is scaring the banks away.

As IEEFA analyst Tim Buckley wrote in May, “seaborne coal markets have undergone deep structural changes over the past few years as supply has exceeded demand.

“And India – for whom the Galilee endeavour was supposed to provide an endless supply of coal – has … moved to modernise its electricity sector by adopting a national policy that has a stated objective to now eliminate any need for foreign coal.”

And banks aren’t the only ones abandoning Carmichael. Korean industrial giant LG has this week confirmed it will not be purchasing the four million tonnes of coal from the Galilee Basin mine it had proposed to in a letter of intent.

LG issued a statement on Wednesday saying: “The LOI concluded by and between LG International Corp and Adani Mining Pty Ltd was non-binding and is invalid as of July 21, 2015 in accordance with the expiration of the LOI”.

And then there is the risk to investors of stranded assets, in a warming world with an increasingly tight carbon budget. As The Australia Institute has pointed out this week, the Carmichael coal mines are bigger than most people can comprehend, and burning their coal would take a huge bite out of a constrained global carbon budget.

“The Carmichael Mine would produce 40 million tonnes of coal per year and more than 2 billion tonnes of coal over its lifetime,” TAI says as part of its No New Coal Mines initiative, released on Thursday.

“That’s enough coal to make a road of coal 10 metres wide, one metre deep and 200,000 km long. Such a road could stretch around the world five times.”

If that comparison doesn’t work for you, try the map below.

PARIS

Image: Miriam Thomas

For its part, NAB is being careful to stress it is not abandoning coal investments altogether.

A spokesperson from the bank said on Wednesday: “We have a role to play in transitioning to a low carbon economy, we also believe we have the responsibility to fund projects that will secure Australia’s energy needs now and into the future and coal has an important role to play in this.”

But former NAB CEO Cameron Clyne has a slightly different take.

“NAB’s statement today seems an entirely sensible decision and prudent for NAB’s shareholders,” Clyne told Fairfax Media on Wednesday.

“You would be hard pressed to find a financial institution that would make a different call to NAB’s today,” he said.

“This project, by all accounts, doesn’t seem to stack up economically and appears unlikely to ever turn a profit.”  

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  • Rob G

    It would be a crime against Australia if this government used taxpayers $$ to fund a lemon like this. Criminal charges should be forthcoming to all those involved…

  • trackdaze

    Thank you g hunt for stuffing up the paperwork.

    Assign some of the Carmichael area to solar. Just make sure they”re of the ground so the skinks and snakes can move about without bashing they’re heads.

    Precisely how much solar would the rail and coal terminal buy?

    • Peter F

      At about $16b investment current large scale solar projects projects are running at about $2-3m per megawatt installed and connected so that buys you 5-7,000MW. If you spread the investment over the 3 to 5 year investment time frame of the mine it would start generating revenue in the first year and taking advantage of the declining costs of the equipment over the period the final capacity would be closer to 8MW. The borrowings and therefore finance cost would be lower as a) revenue is generated much earlier and b) if there is a significant change in circumstances and the project is stopped or changed the first stage(s) will be generating revenue. With the coalmine if it stops part way pretty much all the investment to date is lost
      In the Queensland context that should generate about 16TW.hrs which is around 30% of Qld annual demand. If the solar farms were built west of the divide and pointed west north west and combined with Queensland existing small solar and existing wind, hydro and pumped hydro at Wivenhoe they would meet Queenslands peak power demand

      • trackdaze

        Thanks. Figured we need some perspective on opportunity cost of abbotts circa 1950’s coal mindset versus new milenium thinking.

        • michael

          Australia isn’t paying the $16b, and it’s not for Australian power…. But nice comparative costs of disconnected opportunities

          • trackdaze

            Figured it was total cost. Think roads/rail and new ports and polution carry a heavy public burden in the billions call it a proxy subsidy if you will.

            What the govt wont tell u is that the jobs this mine may “create” will be on the back of others mines closures.

  • michael

    you forgot to add the part of the story where it was reported that Adani had not approached them to do any finance and they have done zero due diligence on it, so really a pointless bit of information that NAB won’t finance it. May as well pick any bank in the world and ask them, most of which will probably say they are unlikely to finance it. Has NAB ever knocked back a request for funding on a renewable project?
    good propaganda nonetheless.

    • Hendo

      Michael with respect, how do we know “…[NAB has] done zero due diligence on it…” Like them or not, NAB is astute enough I would think, to have some very good insights into coal mine finance simply as a matter of being able to do expert ” due diligence”.

      • michael

        That would be because if you take it on face value their statement that they won’t be financing it, you also take on face value their statement (not included here but reported in other publications) that they have done no due diligence on it… Probably because they weren’t ever approached to finance it! Such a non-story beat up. So with respect, wider reading allows one to see what gets left out of selective reporting

        • Hendo

          Hi Michael. I don’t know where your sensitivity got offended here, it was not my intention. If you read carefully you will see that I qualified my comments with a degree of probability, viz. that the NAB was in all likelihood qualified to run due diligence when required to do so. Whether or not they were invited by Adani was never a condition.

          You rely on ” wider reading” but do not support that with example. I’m guessing you read more newspapers for a start and probably other stuff but you don’t cite such. “That which can be asserted without evidence can be dismissed without evidence”. (Christopher Hitchens)

  • john

    Every financial analysis shows that the project is not viable because to mine, rail, port and ship is above the current and foreseeable market price.
    Even if the overall cost of the project is reduced by the Capital Expenditure for the rail and port then the outcome is not any better.
    Perhaps if there is a large demand for thermal coal from India and China the price may increase, however both seem to be trying to reduce the use of FF so that aspect does not look bright.
    The political spin is not exactly being truthful about the cost aspects for this operation.

  • Hendo

    The declining outlook of the Carmichael project is heartening from an environmental view point. But even more heartening for me is that the change is happening notwithstanding the clear efforts of the present federal government to allow the project. World concern is prevailing over an intentionally blind Australian government.