In China's biggest play yet to tie up supplies of thermal coal, China Metallurgical Group Corp (MCC) has joined forces with Waratah Coal Pty Ltd to develop a $5 billion export project in Australia, the world's No. 2 supplier.
China, the world's largest producer and consumer of coal, wants to insure itself against rising exports and an anticipated surge in domestic consumption with a move that will help unclog exports in Australia.
The agreement provides for MCC to arrange debt funding of around $3.1 billion to help build Waratah Coal's planned $5.2 billion coal mine and port project in Australia, the Brisbane-based coal miner said in a statement on Wednesday.
Waratah Coal, which is owned and chaired by billionaire Clive Palmer, said MCC would be the project's engineering, procurement and civil contractor, and would buy 30 million metric tonnes of coal a year.
MCC will also provide, or arrange for other Chinese investors to provide, 10 percent of the project cost, or about $515 million, in return for a 10 percent stake.
China may have loads of coal but if they're mining and consuming at over 2 billion tonnes every year, its going to be harder and more expensive to replace those resources, said Lachlan Shaw, a Melbourne-based commodities analyst at the Commonwealth Bank of Australia.
In short, this is a case of getting security in long-term supplies. It's a similar strategy Japan has followed for decades and China is now following suit.
Chinese firms have stepped up investments in resource projects in recent months, as a plunge in global commodities prices and difficulties faced by mining firms in securing credit have made it easier and cheaper for Chinese buyers to snap up assets.
For a table on China's acquisition of Australian assets: [ID:nSYD243187].
Chinese investment in Australia has surged nearly eight times from a year ago to reach about $12.4 billion so far this year, data by Thomson Reuters shows.
MCC's investment in such a massive greenfield project also reflects the fact that Chinese firms and investors have the best understanding of how much domestic demand will be in the future and are prepared to put their money in, Shaw said.
MCC has guaranteed that it will purchase 30 million tonnes of coal per annum, estimated at $3 billion per annum and an estimated $70 billion over the life of the project, Palmer said in a statement.
Waratah says the project, in Queensland state, is the largest thermal coal mine in Australia. It is targeting annual output of 40 million tonnes, with shipments due to start in the second half of 2013.
Waratah's project, dubbed China First, will include 490 km of new railway line and a new two-berth export terminal on the north Queensland coast.
Waratah was acquired by privately held Mineralogy this year and its shares were delisted from the Toronto and Australian stock exchanges in April.
MCC, which controls assets worth 83 billion yuan ($12.15 billion) worldwide, is also involved in partnerships to develop nickel mines in Australia and Papua New Guinea. ($1=6.830 Yuan) (Editing by Clarence Fernandez)
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