India's Adani Invests $6.9 Billion in Australian Coal and Moves on 2020 Targets

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Researched by Industrial Info Resources (Sugar Land, Texas)--India's Adani Enterprise Limited (BSE:512599) (AEL) (Ahmedabad, Gujarat), the flagship company of diversified business house Adani Group (Ahmedabad), has announced plans to invest $6.9 billion to develop the recently acquired Galilee coal tenement in Australia's central-west Queensland. According to a company statement, "Adani is committed to invest $6.9 billion in Australia for developing mine, rail and port projects in its Galilee Basin coal mine in Queensland, Australia, to produce up to 60 million tons of coal a year at its peak."

The Galilee tenement is reportedly Australia's largest single coal tenement, with an estimated coal reserve of 7.8 billion tons. The mine is expected to reach its peak production in four to five years."We are targeting first coal by the end of 2014 and a production of between 50 million and 60 million tons per year to be achieved by 2022," said Chairman Gautam Adani of AEL.

The coal mine acquisition was executed in August this year for almost $2.8 billion in a cash and royalty deal. AEL made an initial payment of about $458 million to former owner Linc Energy Limited (ASX:LNC) (Brisbane, Australia) and will follow that with about $1.80 per ton in royalty over the first 20 years of coal production. Adani said, "This investment represents the largest Indian investment in Australia and is an important benchmark in low-rank thermal coal assets that have been ignored because of inadequate logistics."

AEL was earlier accorded a preferred status by the government of Queensland for developing the 30 million- to 60 million-ton-per-year Dudgeon Point coal terminal near Mackay. This is the first time that a non-Australian company has been permitted to lease land for port development. The 99-year lease has been granted to Mundra Port and Special Economic Zone Limited (BSE:532921) (MPSEZ) (Ahmedabad), which is promoted by the Adani Group. MPSEZ is expected to set up two terminals at a total cost of about $2.8 billion. Dudgeon Point lies within the leading coal-producing Bowen Basin region that supplies the world with pulverized coal injection-grade coal, coking coal, and high-grade thermal coal.

In August this year, AEL signed a $1.65 billion deal with the government of Indonesia and mining company PT Bukit Asam (Persero) Tbk (Tanjung Enim, Indonesia), whereby AEL will set up a coal port and railway infrastructure in the province of South Sumatra and in return, be accorded exclusive rights to source and transport coal to India. A company statement said, "The project provides coal purchase rights to Adani, and the infrastructure created will be used for transportation of 35 million tons per year of coal on a 'take or pay' basis from PT Bukit Asam concessions in South Sumatra."

"The coal terminal will have the capacity to handle 50 million tons of coal. Bukit Asam will supply around 34 million tons," Governor Alex Noordin of South Sumatra added. The proposed 250-kilometer railway line will be in addition to the proposed line to be developed by Bukit Asam.

The Adani Group already owns a coal mine in the Indonesian province of Kalimantan, which has a production capacity of 6 million tons per year. The company plans to enhance the mine capacity to 10 million tons per year. The company also has purchase and long-term supply agreements with other companies in Indonesia.

Sumatra has an estimated 11.5 billion tons of accessible coal reserves, but the island could produce only 11.5 million tons last year because of the unavailability of sufficient transport infrastructure. Although rich in natural resources such as coal, oil and gas, Indonesia has not been able to develop either sector because of insufficient investment in exploration and limited transport options.

Speaking at the company's last annual general meeting, Adani officials said: "We have a stated vision. By 2020, we should have port-handling capacity of more than 200 million tons of cargo annually, 20,000 MW of commissioned power generation capacity, and 200 million tons per annum of coal mining capacity in India and overseas." The company plans to achieve 50 million tons per year in coal trading as well. The Adani Group plans to import about 35 million tons of coal during the current fiscal year 2010-11, against the 30 million tons imported in 2009-10. The company is India's largest importer of coal.

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