The small Queensland producer of pulverised coal injection-grade metallurgical coal and thermal coal is aiming to lift output of its Baralaba mine from 1 million tonnes per annum to 3.5Mtpa.

However, market sources told the Australian Financial Review last week that Cockatoo’s proposed debt financial deal for the project with ANZ bank was in doubt.

“Fears over securing funding come as Cockatoo Coal called a meeting with about 40 contractors on Wednesday afternoon to inform them they were being laid off,” the newspaper reported.

“Both ANZ and Cockatoo Coal declined to comment. It is understood debt discussions between the parties are continuing but a deal appears increasingly unlikely.”

Almost a year ago Cockatoo outlined key conditions of a proposed $A255 million Baralaba expansion project finance facility from ANZ that included gaining regulatory approvals; securing offtake agreements for at least 75% of output; a continued commitment from partner JFE Steel; and sufficient financing to fund project development to a “P50 contingency”.

Cockatoo received federal environmental approval for the project on December 22 but still needs to clinch Queensland environmental and mining licence approvals.

While low coal prices are an expected hurdle for the financing talks, Cockatoo is also locked into a contract to rail 3Mtpa of coal to WICET which will burn cash if the Baralaba expansion project does not go ahead.

“The miner will still be liable for take-or-pay commitments – understood to be about $US12 a tonne – even if it cannot fill its quota,” the AFR reported.

“Cockatoo’s take-or-pay contract was struck at the height of the coal boom.”

Cockatoo’s plight has created more concern for the WICET consortium it is part of.

The 27 million tonnes per annum coal export facility was expected to start shipping coal in November but that month it revealed this would occur on March 15.

The September collapse of WICET member Bandanna Energy already forced the other WICET partners to increase their financial commitments.

Cockatoo, which only received final approval to expand its Baralaba mine to 1Mtpa in September 2013, last extended its ongoing trading halt on January 5. It expects it to be lifted on January 27.