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Adani Enterprise [ADE:IN] has offered to pay Linc Energy [LNC:AU] a one-time settlement in lieu of paying royalty over a period of 20 years, said Rajeev Phanse, director at Singhi Advisors, advisor to Adani. This is over and above the upfront payment of AUD 500m (USD 455m), he added.

Adani Enterprises, through its step down Australian subsidiary Adani Mining Pty Ltd, yesterday concluded a binding agreement with Linc Energy for the acquisition of a 100% interest in the latter's Galilee coal tenement in the Galilee Basin, Queensland. Aside from the upfront payment, Adani also has to pay royalty over a 20-year period linked to annual production at AUD 2 per tonne.

The deal structure could change depending upon whether Linc wishes to accept a one-time settlement in lieu of royalty payments over a 20-year time frame, said Phanse.

Linc's Galilee coal tenement has estimated reserves of 7.8 billion metric tonnes. Adani has targeted annual production in the region of over 50 million metric tonnes of coal from 2014 post the development of the mines and other infrastructure including the railway line, Phanse said. Hence as part of the transaction, Adani would pay a royalty of USD 1.84bn over 20 years, he added.

Should Linc prefer, Adani could make a one time settlement of this royalty fee at the net present value of the amount, which could see some discount factor depending upon the timing of the payment, Phanse said. He added that Adani could pay the one-time settlement amount after the second year.

On the funding, Phanse said that Adani will be able to finance the upfront payment of AUD 500m payable this month (August) by way of cash in hand. Adani raised about USD 900m by way of private placement to institutional investors last month. It can easily arrange to raise another AUD 2bn by way of loans, Phanse added.