Adani and the grief to income ratio (from my newsletter)

Adani (now ludicrously renamed Bravus) is pushing ahead with the Carmichael mine-rail-port project, but the financial and reputational costs keep mounting. Having been forced to finance the mine and rail project out of its own funds, Adani is now finding that its Adani Ports business (of which the Abbot Point coal terminal is only a small part) is becoming equally toxic. PIMCO, once its biggest bondholder announced that it would no longer invest in new bond issues. At the same time, S&P reversed a decision to include Adani Ports in its sustainability index because of investments in Myanmar – without the continuous focus of critics, this investment might have escaped notice.

The name changes under which Adani Mining became Bravus and Adani Abbot Point became North Queensland Export Terminal is an indication of the toxicity of these projects.

The continuing struggle against Adani may not stop coal being shipped from the mine, but it will sooner or later make the project a stranded asset, ensuring that most of Adani’s investment is lost.

The bigger picture is that Adani has greatly increased the “grief to income ratio” of investments in any part of the coal production chain. Financiers and suppliers who have agreed, under pressure, to withdraw support from Adani, have realised that they are better off getting out of coal altogether, and are starting to draw the same conclusion about gas.

A recent example is the decision of US insurer Liberty to abandon a proposed mine at Baralaba in Queensland. Liberty had already agreed, under intense pressure, not to insure Adani, and this step was a logical consequence 

This pattern is not unique to Australia. The struggle to stop the proposed Vung Anh 2 coal-fired power station in North Vietnam hasn’t yet succeeded. But companies like Mitsubishi involved in Vung Anh 2 have dumped projects that haven’t yet started and promised to withdraw from coal altogether.  . The Hunutlu coal plant in Turkey, funded by China’s Belt and Road initiative, looks like being the last such venture.

More grief, less income. That’s the future for anyone involved in coal.



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4 thoughts on “Adani and the grief to income ratio (from my newsletter)

  1. It is about time that social costs are taken into account for future mining projects. In NSW, the farmers of the Hunter Valley, Gunnedah and the Narrabri Shire are all objecting to the expansion of mining activities near prime agricultural land. Their fears are related to local water tables and the “footprint” of mining activities. When Australia’s scarce resources are threatened, then mining activities should be curtailed. The stress of farming right next to a mining operation is unconscionable. Add to this the loss of air quality and the water pollution common to mining activities and you get a picture of the social costs to rural communities. An obsession with mining jobs is no excuse for environmental damage. Often governments hide their real intent under the guise of “protecting our mining workers”. The real intent is often related to the royalties paid to them by mining companies.

  2. Lock the Gate Alliance posted “Western Slopes gas pipeline demise welcome, spells further uncertainty for Santos” on May 6, that began with:

    “APA Group’s failure to submit an Environmental Impact Statement for its controversial Western Slopes Pipeline by the deadline this week raises doubt over the future of the fiercely opposed Santos Narrabri gasfield, according to Lock the Gate Alliance.

    An email (see below) sent to members of the Western Slopes Pipeline Community Consultative Committee yesterday (May 5) revealed the company had not submitted its EIS by the due date (May 4).”
    https://www.lockthegate.org.au/western_slopes_gas_pipeline_demise_welcome_spells_further_uncertainty_for_santos

  3. Why is an insurance company running a coal-mining business? Apart from the reputational risks Liberty has just woken up to, being an owner rather than a shareholder has serious disadvantages for a big corporate investor. I imagine the law of bankruptcy of subsidiaries is quite tricky: it’s an obvious loophole for fraudulent dealing. In addition, company directors have enforceable duties that go well beyond limited liability. More expert input welcome.

    The latest EndCoal newsletter links to a long Reuters piece by Polina Ivanova on a huge Russian coal mine in the high Arctic, Elga. https://www.reuters.com/article/us-russia-coal-elga-mine-specialreport-idUSKBN2CG18W . The new oligarch who bought it, Albert Avdolyan, plans to expand output from 4 mt/yr to an incredible 45 mt/yr.by 2023. The selling point for the project is that it’s metallurgical coal, not thermal, and Asian demand for steel will keep rising, right?

    Up to a point, Lord Copper. World pig iron production is only growing slowly, as more cheap scrap metal comes available from 20-year-old cars etc. It’s a risky bet to assume it will keep growing at all (see tertiarisation).

    The bigger change is the coming switch to hydrogen DRI, on which I’ve reported here. Swedish steelmaker SSAB plans to close its first blast furnaces by 2025. https://www.ssab.com/company/sustainability/sustainable-operations/hybrit-phases. Arcelor-Mittal and Thyssen-Krupp are making serious investments in the technology, and other players like the Chinese Baowu, Kobe in Japan, and iron ore giants Vale and BHP are all looking into it and weighing their options.

    The technology for low-carbon steel works. The question is how fast policymakers will put in place the incentives to make it happen, and how fast mass production of simple hydrogen electrolysers will lower costs. My guess is fast for both. Steel customers like BMW and Volvo Trucks are already advertising their commitment to coming-soon green steel. Steelmakers have no sentimental attachment to buying millions of tons of coking coal from Russia, or for that matter Australia. Mr. Avdolyan will lose his shirt.

  4. PS: Ms Polinova’s article includes his tidbit:
    “On the train to Elga, the miners killed time over card games and sips of chifir, a drink brewed using eight tea bags per cup, its heady, nauseating kick a common replacement for alcohol in Russian prisons.”
    These are Russian teabags of strong black tea to begin with. It is not entirely remeasuring to think of thousand-tonne bucket excavators being operated by men on an extreme caffeine high.

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