ANALYSIS: Queensland’s newest coal rail and export terminal has a stage one capacity of 27 million tonnes a year, and is designed to expand to more than four times that. But with coal prices down, and shifting global energy markets, will expansions ever take place?
The Wiggins Island Coal Export Terminal (WICET) achieved mechanical completion on April 30, 2015. With ramp-up to full stage one capacity forecast for some time in 2016, it will soon be sending coal into the seaborne market at a rate of 27 million tonnes per annum (mtpa).
WICET was approved at the peak of the coal market – when prices for Australian thermal standard soared to almost US$200 a tonne – and financial close was achieved by the WICET Group in 2011, as the coal market bounced back from the GFC.
When construction on WICET began in December 2011, coal sat at US$120 a tonne.
40 months later, in April 2015, mechanical completion was announced and the coal price was US$62 a tonne – down 48.5%. Click the below image for full resolution.
Far from ideal.
The consortium responsible for WICET stage one is made up of eight coal businesses: Aquila Resources, Bandanna Energy, Caledon Coal, Cockatoo Coal, Glencore, New Hope Group, Wesfarmers Curragh and Yancoal.
Since they signed up to be part of that team, those eight have had mixed fortune.
First, the (relatively) good.
Aquila is 50% invested in the 4mtpa Eagle Downs hard coking coal mine, which was 30% complete in June 2015, and is targeting completion in 2016.
Caledon is progressing its mining venture in Queensland, ramping up production at its Cook mine and awarding a 4mtpa contract in mid-2015 to rail operator Aurizon to haul coal to WICET.
Next, the not so good.
Glencore, despite being a major mining business, has had struggles of its own, with significant debt now looking tough to deal with in the current market for commodities.
New Hope Group is still undertaking exploration and geotechnical work at its Colton project, where it was aiming to mine to produce exports for WICET.
Wesfarmers Resources, another major miner, has been forced to make significant cutbacks at its Curragh mine. Wesfarmer’s managing director for resources said earlier in 2015 that coal “remains challenging,” predicting “continued low export prices … which will result in a significant downward impact on profitability.”
Finally, the ugly.
Yancoal, a Chinese-owned producer, announced an after tax loss of more than $145m in the first half of the 2015 calendar year. Chief executive Reinhold Schmidt said the company was “focused on reducing costs and maintaining consistent strong production targets”.
Cockatoo Coal has had a tough time, undertaking significant cost cutting measures earlier this year, along with market fund raising, and a share price drop from 10c in 2011, to less than a tenth-of-a-cent in the second half of 2015.
Bandanna Energy appointed administrators on September 22, 2014. Since July 2011 its share price has dropped from $2.13 a share, to below 10c.
What does all this mean for WICET?
The export facility was designed around an efficient staged development model. While stage one export capacity sits at just 27mtpa, stage four – the final stage in current plans – gives an indicative throughput capacity of 120mtpa. Click the graphic below to expand.
Each of the four stages would add another rail receival station. The facility, which currently features zero stacker reclaimers, would have 3 added in stage two of development, 3 more added in stage three, and 1 more added in stage four, giving it a potential of 7 total stacker reclaimers. Shiploaders at the site would also increase with each stage, as would berths.
All of this would mean big business for rail, shipping, and peripheral businesses. The question is whether the current market would support that kind of expansion.
$2.6 billion was spent by the WICET consortium to build the terminal in its current state.
WICET can currently unload a 2500 metre train, and can unload 9200 cubic metres of coal per hour, translating to between 6900 tonnes per hour, and 8250 tonnes per hour, depending on the product. It can load a single 220,000dwt vessel at a typical rate of 4000 to 7000 tonnes per hour from its single shiploader.
The terminal made its first shipment of coal, amounting to 73,000 tonnes, in late April.
If the second stage of WICET was developed, the train unloading facility would double in capacity, the number of berths would jump from one to three, and one shiploader would be added. This would more than double the terminal’s capacity, from 27mtpa to 60mtpa.
Current environmental approvals allow for an expansion up to 84mtpa of throughput, which would represent stage 3 of development (although stage 3 of the expansion would allow for a maximum throughput of 90mtpa).
The maximum possible throughput of stage 4, 120mtpa, would of course require additional environmental approvals to be granted.
So the question has to be asked: With the seaborne coal market remaining unfriendly, and major coal consumers around the globe turning off coal, will those expansions ever take place?
Only time will tell.