http://theaimn.com/standing-coal-abbott-newman-give-investment-advice/
There are also issues with both companies.
Adani Mining Pty Ltd borrowed $516 million from another subsidiary of the Adani Group, Adani Minerals, at an interest rate of 4.25%. Adani Enterprises, the parent group, borrowed from the banks 2 per cent more cheaply that it charges Adani Mining the subsidiary in Australia for internal loans.
Why would these loans be priced so far above commercial rates? Potentially they could rack up losses in Australia and rip out equivalent profits to India. Some $10 million a year thereby transferred – 2 per cent on $516 million – tax free to the subcontinent.
Rupert would be proud.
Adani Mining P/L had no revenue and booked a pre-tax loss of $112 million in 2013-14. It spent $75 million on exploration and evaluation of the mining area, which was capitalised, along with $41 million of interest, into the balance sheet rather than expensed against the profit and loss.
Adani Mining’s red ink of $112 million mostly relates to currency losses. All loans are in US dollars with no hedging, giving rise to a loss every time the Australian dollar declines
The total investment so far by the Adani group in Adani Mining is now $984 million and shareholder equity is negative to the tune of $45 million which reflects net borrowings of $1.015 billion in this Australian subsidiary alone.
So we have a company with $1 billion in debt, negative shareholders funds, zero revenue and high cash burn with $15 billion still to spend, and the parent company, Adani Enterprises, has debts of $US12 billion.
Tim Buckley, director at the Institute of Energy Economics and Financial Analysis, puts it bluntly: “This project is not commercially viable”. Apart from the financial deficiencies of the main participants, he says thermal coal is in structural rather than cyclical decline.
In another red flag, Linc Energy accepted $155 million from Adani a couple of months ago for its option in the project. It is worth asking why Linc boss Peter Bond would sell a royalty of $2 billion over 20 years – perhaps worth $600 million today – for just $155 million.
And then there’s GVK.
Despite claiming to be a “leading global infrastructure owner, manager and operator” GVKPIL has no experience operating any business outside of India. It has never successfully built and operated a coal mine – in India or otherwise. GVKPIL has not operated any business in Australia, let alone a US$10bn greenfield project in the face of massive environmental, operational, logistical and financial challenges.
GVKPIL is currently committed to 16 greenfield infrastructure projects across six different asset classes. Many are behind schedule and / or over budget.
With a market equity capitalisation of only US$243m, GVKPIL is carrying on-balance sheet net debt of US$2.8bn. It’s share price is at an all time low and has underperformed the Indian index by 80% since 2010.
Building Australia’s largest black thermal coal mine in the untapped Galilee Basin would challenge experienced operators, but the combination of an inexperienced developer, slack demand globally for thermal coal and a deteriorating cost of production scenario in Australia moves the project beyond speculative.
