May 27 (Bloomberg) -- Waratah Coal Inc., the Australian company proposing a $5.15 billion venture in Queensland, said it signed an agreement that will see China Metallurgical Group Corp. organize funding for as much as 70 percent of the project.
An estimated $3.1 billion will be borrowed from Chinese banks, the Brisbane-based company said today in a statement. China Metallurgical, a state-owned construction and resources exploration company, will also take a 10 percent in the project called “China First” for about $515 million.
The project, described by Waratah Coal as the nation’s largest thermal coal mine, will generate as much as A$4 billion ($3.1 billion) of sales a year and A$70 billion during its lifespan, and regulators would be “mad” to block the equity sale, according to Chairman Clive Palmer. Australia in February established a Senate inquiry into foreign ownership after a backlash against Chinese government-backed companies buying stakes in Australian commodity assets.
“The project has been named China First, which probably reads well in Beijing,” Andrew Harrington, a mining analyst at Patersons Securities Ltd., said by phone from Sydney. “At this moment, the great savior is Chinese demand. That is the destination for a lot of our natural resources.”
Waratah was acquired by closely held Mineralogy earlier this year and its securities delisted from the Toronto and Australian stock exchanges in April.
“There are no nuts and bolts about the project in the statement,” Harrington said. “The company is privately listed so there probably won’t be any.”
Buying Coal
China Metallurgical will be the project’s engineering, procurement and civil contractor. It will buy 30 million metric tons of coal a year, which is 75 percent of its projected annual capacity, according to today’s statement to the Australian stock exchange.
“This project is creating 6,000 direct jobs from construction, 1,500 from operations, 45,000 indirect jobs and about A$3 billion to A$4 billion in exports,” Palmer said in a phone interview from Brisbane. “We’re locking in long-term contracts over 30 years. Any government that didn’t approve that would be mad, especially when you’re talking about 10 percent, which is nothing really. We may as well kiss Australia goodbye if we have any problem with that.”
The company will fund the remaining 30 percent of the projected costs by itself, Palmer said. It has no debt and has 10 million tons of coal ready to sell.
Expanding Capacity
On May 22, the company said it had expanded proposed capacity at the Galilee Basin mine by 60 percent, giving it increased targeted annual capacity to 40 million tons.
The venture will comprise the mine, a 490-kilometer (305- mile) rail line and export terminal, with shipments due to start in the second half of 2013, making it Australia’s largest coal project, Waratah said.
Overseas deals booked by Chinese utilities have led to expectations for a possible tripling in thermal coal imports to about 30 million tons in 2009, Barclays Capital said in a report published May 19.
Power station coal prices at Australia’s Newcastle port, a benchmark for Asia, gained 2.4 percent on May 22. The index for power-station coal prices at the New South Wales port increased to $64.82 a metric ton in the week to May 22 from $63.33 on May 15, according to the globalCOAL NEWC Index. Australia is the world’s biggest shipper of coal.
