Tarong recently took steps towards developing a $A500 million coal mine to supply its power station by acquiring options over most of the land surrounding a 150km rail link from its reserves at Glen Wilga to Tarong station near Kingaroy. It has also set in motion the mine permitting process.

Tarong currently has a contract with Rio Tinto Australia to purchase seven million tonnes per annum. The contract expires 2010 and Tarong could start exploring alternative supply options as early as mid-2007.

Coal explorer Intercoal was hoping to cash in on the expiring coal supply contract, a plan that formed part of its prospectus to investors.

Intercoal planned to close its prospectus offer on August 10, but was forced to withdraw the prospectus on July 29 as “new circumstances have arisen since the prospectus was lodged which the directors consider to be materially adverse to investors”

The company had entered into an agreement with Metallica Minerals to acquire the mineral rights to a 180Mt deposit just 25km from the Tarong Power Station. The deal was subject to Intercoal raising the minimum subscription amount under the prospectus.

Intercoal had pinned its hopes on being a supplementary supplier to Tarong, but on July 22 Intercoal was advised by Tarong that “the prospect of Tarong Energy being interested in discussing the purchase of coal from the Kingaroy Coal Project (was) slight".

Intercoal has since questioned if the lack of coal supplier diversification to Tarong was in-line with the Queensland government’s resource development policy and said the lack of diversity offered significant commercial advantages to Tarong Energy, and therefore, electricity consumers in Queensland.

“Although the company is still in discussions with the owner of Tarong Energy, the Queensland State Government, it has not at this point in time been able to adequately reconcile the apparent differences in policies between the Queensland State Government and Tarong Energy,” Intercoal said.

Tarong’s interest in developing a mine at the Glen Wilga deposit dates back to 1999 when the development process was initiated. However, it seems only of late that the project has moved from the backburner to being a serious consideration.

Although the permitting process had begun, Tarong spokesman Geoffrey Ewing told the Courier Mail "it does not mean we have made a final decision".