China eyes A$10b link projects in Australia
Chinese firms are eyeing contracts worth billions of dollars to build rail links connecting coal mines in Australia's interior to its seaports.
China is the world's biggest consumer of coal, used principally to generate electricity and produce steel. And its coal imports are forecast to rise from 100 million tonnes last year to 1 billion tonnes in 2030.
To secure a lifeline to global sources of coal, Chinese firms have invested heavily in several Australian coal mines and are also seeking construction contracts and equity stakes in coal assets there and elsewhere around the world.
Among the major Australian projects that mainland contractors are eyeing is a A$10 billion (HK$80 billion) mine, rail and port project in the Galilee Basin in Queensland.
The project is being developed by Gina Rinehart, chairwoman of Hancock Prospecting and Asia's richest individual, and Indian billionaire GV Krishna Reddy's GVK Group, one of India's largest listed infrastructure firms.
'It's an extremely large project and there is a strong interest in China and other countries to own stakes in it,' said Paul Mulder, coal and infrastructure managing director of GVK.
The Indian firm has planned a 495-kilometre rail link that will transport coal from three coal mines in the Galilee Basin to a port at Abbot Point, from which the coal will be shipped to China and other countries.
The mines have combined coal reserves of 2 billion tonnes and will begin production in 2015 and 2016.
Coal from these three mines was expected to supply power stations on the east coast of China, said Mulder.
'It is possible that 30 per cent of the coal from the three mines will be destined for China' he said. 'By the end of the decade, the three mines will be responsible for at least 20 per cent of Australia's coal exports.'
In October, GVK acquired controlling stakes in the three mines, thanks to its US$1.25 billion takeover of 79 per cent of Rinehart's Hancock Coal.
Construction on the rail and port will start early next year and take three years to build.
'By the end of this month we will be shortlisting contractors for the port, railway, mine infrastructure, and coal processing plant,' said Mulder.
There will be about two bidders shortlisted for each contract.
The rail and port construction contracts will be worth A$4 billion to A$5 billion; the construction contracts for the coal processing plant and mine infrastructure will be valued at about A$2 billion; and mobile equipment contracts will be worth A$2 billion, according to Mulder's estimates.
In addition, GVK hopes to sell equity stakes in the project to global investors, while retaining majority control.
'We are looking at 60 to 70 per cent debt funding, with the rest in equity. Looking at a A$10 billion project, that means we would hope to raise A$3 billion to A$4 billion in equity financing,' he said.
In Mongolia, meanwhile, there has been some initial interest from firms in Hong Kong, Britain, America, Japan and South Korea to provide debt and/or equity financing for a railway link to the Ovoot coking coal project.
'We're open to Chinese involvement in the rail construction, as well as involvement from Russia, Mongolia, and South Korea,' said David Paull, managing director of Aspire Mining, an Australian-listed coking coal exploration firm.
It was possible that Chinese banks could provide debt and Chinese steel firms provide equity to finance the railway, Paull said.
'I don't see this railway dominated by Chinese funding, but Chinese parties can be part of a broader international consortium,' he said.
SouthGobi Energy Resources, a coal producer listed in Hong Kong and Toronto, owns 19.9 per cent of Aspire, while the Noble Group, a Singapore-listed commodities firm, owns 10.1 per cent.
Aspire acquired the Ovoot coking coal project in February 2010, and mining operations were expected to start in 2016, Paull said.
Half of the coal from Ovoot is expected to go to China.
The length, in kilometres, of the railway that Northern Railway, a unit of Aspire, is applying for a licence to build, own and operate