Residents in a Queensland town say it is premature for a coal company to send letters encouraging them to consider selling their land to a project that is yet to start the approvals process.

Moreton Resources wants to develop an open cut project near Kingaroy, and recently wrote to 16 landholders affected by its plans.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 5 minutes 57 seconds 5 m Residents have questioned the timing of letters urging landholders to consider selling up Download 2.7 MB

Kingaroy Concerned Citizens' Group member John Dalton said the letters had caused anxiety.

"A lot of people are quite unnerved by it all because they're saying, does this mean it's going ahead because they want to acquire?" he said.

"Others are saying well no, the company can't surely do that, they wouldn't have the money to buy even the first farm."

Mr Dalton said the letter was an invitation to begin discussions with Moreton Resources about acquisition of the land or alternative arrangements.

"Many of the landholders were taken aback by it because some of them said that normally, a letter to begin discussions about acquisition of land sends a sense of certainty that the mine is actually going ahead," he said.

"When in fact the company hasn't, to the best of our knowledge, filed the first piece of paperwork to even apply for the mine to go ahead.

"This mine hasn't even managed to secure a market for its coal ... they're trying to get a market to sell coal to the Tarong Power Station ... but of course they've got plenty of their own coal.

"Until they get a sale of coal or a market, the whole thing of even talking about land acquisitions just seems out of balance and back to front to many people."

Approvals process start just 'weeks away'

Moreton Resources chief executive Jason Elks said the company sent the letters to engage early with affected residents, and acquiring land was fundamental to the mining application process.

"It's part of our engagement strategy. We're very transparent and open in our attitude with the community, so we like to keep people informed," he said.

"We're about to move into an initial advice statement which will be followed by a mining licence approval, so as part of that process we do need to acquire some land so we can start our mining operations."

Mr Elks said the project, which is about 25km away from the Tarong Power Station, was "just weeks away" from starting the approvals process and he was confident there would be a market for the coal.

"There's always a market for coal, there's a spot market for coal, so as long as you can get your coal to port there's a spot market," he said.

Mr Elks said the company was investigating developing rail lines to access ports on the east coast.

"Essentially we've highlighted there's ... probably eight options in regards to corridors to get the coal to the coast," he said.

Company looking at local and overseas options

But he said the company was still pursuing long-term contracts with domestic customers, mostly likely through State Government-operated providers like Stanwell Energy.

"We've talked about a domestic supply. We've never named Tarong Power Station in our pre-feasibility but we still believe there's a domestic supply," Mr Elks said.

"We believe the State Government would be interested in saving over $100 million dollars a year, so it's still a potential for a local supply.

"We're still progressing in regards to the opportunity for a local supply, but equally we're also progressing to look for overseas agreements.

"Either project works. They both stack up economically, the asset's that good."

Stanwell Energy does not need alternate source of coal

On its website the company said the thermal coal project had a probable coal reserve of 290Mt that it said could be supplied at the benchmark price of $50 AUD/t.

The nearest potential customer, Stanwell Energy, said it did not need an alternate source of coal for its power station, because it had its own mine, Meandu, which had enough supply to last the 15-20-year economic life of the plant.

In a statement, Stanwell chief executive officer Richard Van Breda said figures used by Moreton to justify switching to its coal "overstated the fuel costs for Tarong Power Station and created a misleading impression that their project could save Stanwell millions".

"The reality is that Moreton Resources' projected coal costs are higher than Stanwell's current fuel costs, so their project would end up being a liability for Stanwell if we entered into a coal supply agreement with Moreton," he said.

"I have advised them that Stanwell has no need for, or interest in, coal sourced from Moreton's proposed project.

"Developing a mine requires a significant investment in the approvals process, land acquisition, mine infrastructure and fleet, and would require a corridor to transport the coal 25km to the power station.

"Not only do Moreton's estimates seem underdone in this regard, but why invest in infrastructure when it is not needed, as we already have a very well run and cost competitive mine?

"We own Meandu Mine, we own the infrastructure and the equipment, and we have a mine plan that provides us with the flexibility to compete in the dynamic and highly challenging wholesale electricity market when conditions change."

Mr Elks disputed that assessment, and said the figures his company used came from Stanwell's annual report.

"If they're going on the record and saying that their public annual reports are wrong, that would be an interesting position they put," he said.

"If that's the case, and they could point out to us anywhere in their annual reports where they've made errors, we'll certainly change our figures.

"Stanwell probably have two choices in that argument — they either admit they've got something wrong, which means they need to change their own publically-released information, or they probably concede it's real and they actually move on and admit to the public of the gross spend they've had for the last 16 years on the asset. "

Transport 'eats away' at coal margins

Either way, ANZ senior commodities strategist Daniel Hynes said the further the coal had to travel, the less attractive it became for buyers.

"Certainly the infrastructure in the country, particularly the eastern seaboard, is obviously dominated by the export market and there certainly isn't too much spare capacity around," he said.

"Domestic sellers of coal certainly become a lot more beholden to regional buyers or buyers of a close proximity, because the margins we're talking about are relatively low and can be eaten up pretty quickly when you start moving the coal a large distance.

"Really the competitiveness of coal as a fuel is certainly challenged when large transport costs come into play."

Kingaroy resident John Dalton said landholders were struggling to understand Moreton's strategy, and they would meet with a lawyer on Monday to take advice about the letters they had been sent.

"We continue to believe that it has poor prospects as a proposal," he said.

"We don't believe they've got any other market aspects that we know of in the way of export ... there's certainly no rail facility. There seems to be low coal prices anywhere.

"Then, even if it did want to go ahead, it is just a replacement mine for an existing one, so it's not as if suddenly the town gets a sudden new industry.

"It's just the same industry in a worse place right next to town."