Source: Institute for Energy Economics and Financial Analysis
A crash in Australian thermal coal prices is raising fresh questions about the viability of a controversial $4 billion coal mine just a week ahead of a national election in which climate change is a key issue.
Final approval of the Carmichael coal mine in Queensland, owned by India’s Adani Enterprises, should come in “a matter of weeks, not months” following nearly a decade on the drawing board, the company’s mining chief executive, Lucas Dow, told Reuters last month.
But a 40 percent slump in benchmark Australian thermal coal prices since mid-2018 to a two-year low last month, points to tight profit margins and questions as to whether the economics will support the launch of the mine as soon as next year.
Adani has said it is aiming to start producing 10 million tonnes a year of coal from March 2020, but analysts say the target date is optimistic.
“I think a lot of people are doubting as to whether it will see the light of day,” said Wood Mackenzie analyst Victor Tanevski in Sydney. Tanevski suggests benchmark Newcastle 6,000 grade coal would need to be close to $100 a tonne for the mine to break even. The 6,000 benchmark was quoted at $86.20 on Thursday.
Analysts suggest the mine is unlikely to start commercial production until the middle of the next decade at the soonest, if at all. A profit margin of $8-$12 a tonne is half the averages of 2017 and 2018, highlighting how rapidly the market has turned since the Paris agreement on climate change.