Whitehaven gives up on Cobbora

WHITEHAVEN Coal is believed to have walked away from negotiations with the New South Wales government over rights to construct and operate the $A1.3 billion Cobbora mine near Mudgee as a feeder mine to three state-owned power stations after failing to agree over the price of coal.
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The Cobbora project area.

Lou Caruana

Whitehaven was seeking $55 per tonne of coal which would have made it economically unattractive for the State government to privatise the state’s power generation assets, analysts believe.

The State government is now being forced to retender the Cobbora open cut mine contract, which is expected to produce 30 million tonnes of coal per year and provide the coal for the State’s medium term energy needs.

State-owned utilities Macquarie Generation, Delta Electricity and Eraring Energy have formed an unincorporated joint venture to back Cobbora, but aim to secure a mining company to develop and operate the mine.

The JV is seeking state government approval to mine 30Mtpa of raw coal and produce 20Mtpa of product coal. Open cut mining is slated to start in 2013 for a life of 21 years.

The negotiations failed at a time when NSW private coal companies are increasingly coming under foreign ownership and focused on increasing shipments of thermal coal to more lucrative export markets.

The strong prices being offered for export coal are making the prospect of locking into long term sub-market priced contracts less attractive for coal miners, who are seeking to diversify their revenue base.

Whitehaven Coal is being widely tipped as a foreign takeover target after one of the few remaining independent coal producers – Centennial Coal – is under a takeover offer by Thai energy group Banpu for $A2 billion.

Centennial Coal’s managing director Bob Cameron said at the company’s recent results announcement that: “I think they (NSW Government) accept the reality that coal pricing will be reviewed not just by us but by all suppliers as long-term domestic contracts roll off.”

The renegotiation for Cobbora comes at a bad time for the government, which is attempting to privatise the state’s power generating assets for $8 billion to repay debt and face the polls in March. The government not only needs to negotiate a low cost per tonne of coal to make the assets attractive to buyers of the power assets but also keep a lid on energy prices in NSW which are tipped to rise by up to 42% by 2013.

Binding bids for the electricity asssets are due by November 1 and Origin AGL and TruEnergy are believed to be front runners to acquire the assets.

The uncertainy over supply will affect “gentrader” contracts, which are the trading rights of the generator’s electricity output.

The Keneally government’s failure to negotiate a key coal supply contract is another mortal blow to its power sale, NSW shadow treasurer Mike Baird said.

“This major transaction has been flawed from beginning to end and taxpayers will be rightly concerned,” Baird said.

“The Keneally Labor government cannot achieve a maximum sale price for the electricity assets if bidders have no idea how much they will be paying for coal.

“The collapse of a new coal supply contract for the generators are another nail in the coffin in Labor’s doomed power sale.

“The Treasurer needs to abandon this process rather than selling these once-in-a-generation assets at any price. It is clear this power sale is being rushed through to prop up the State Labor government’s election campaign.

“Market analysts have confirmed that the uncertainty around coal supply will lead to lower prices for gentrader contracts, as coal is the critical cost component. The doubts about Labor’s gentrader model delivering value for money for taxpayers are now increasing by the day.”