Analysts question risks after Brisbane minnow raises less than $750,000 to buy Anglo-American coalmine with a $121m to clean-up obligation

This article is more than 4 years old

This article is more than 4 years old

A Brisbane mining minnow that raised less than $750,000 from investors before inking a deal to buy a coalmine must now guarantee it can pay more than $120m to clean up the site upon closure.



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Batchfire Resources’ agreement to buy a central Queensland mine from Anglo American highlights a growing shift by global coal giants away from less-profitable mines, leaving the fate of expensive environmental rehabilitation in the hands of companies with far fewer resources.

One analyst said this in turn raised the risks that taxpayers would ultimately be forced to bail out miners if they failed or “financial assurance” regimes run by state governments proved inadequate – as was found in a Queensland government report less than two years ago.

Batchfire, revealed last week as the little-known buyer of the open cut Callide mine, has 24 shareholders – 10 of them registered to the same suburban Brisbane house – who have pooled about $748,000 in funds.

Anglo American said the sale price was confidential, but RBC Capital Markets estimated the mine would cost less than $US100m.



However, Batchfire must now produce a site rehabilitation bond of more than $121m, either in cash or a bank guarantee, to be held by the Queensland government

A spokeswoman for the Queensland Department of Environment and Heritage Protection (DEHP) said the government held $121,069,956 in financial assurance in the form of a bank guarantee from Anglo American.



It is not clear whether Anglo American will underwrite Batchfire’s bond as part of the deal.



But the spokeswoman said the DEHP “cannot transfer bank guarantees” and that it was “a matter for the financial institution”.

“EHP requires the bank guarantee to be in the name of the environmental authority (EA) holder,” she said.



“The financial assurance currently held cannot be discharged to the former owners of the mine until financial assurance is lodged by the new owners.”

Ten of Batchfire’s shareholders are registered to the Chapel Hill address of the company’s linchpin, the geologist Edward Choros.

The largest shareholder in Batchfire with a 48% stake is Choros’s company Ambre Investments, linked to his controversial resources play which last year lost investors millions of dollars in a failed US coal export venture that drew strong opposition from environmental groups.

Ambre Energy had previously abandoned an unsuccessful coal-to-liquid fuel venture and been denied the opportunity to mine agricultural land west of Toowoomba by the former Newman government, which ruled it was “not in the public interest”.

Attempts to contact Batchfire and Ambre Investments were not successful.



The open-cut mine, south west of Gladstone, has operated since 1944, with most of its 7.4m tonnes of coal a year sold to the nearby Callide power station.



Tim Buckley, of the Institute for Energy Economics and Financial Analysis (IEEFA), said the emergence of private miners willing to exist on smaller profit margins but with reduced ability to cover rehabilitation costs would be an “absolutely reoccurring theme for coal in Australia this year”.

Buckley said sale of mines for peppercorn amounts – including the sale of the Isaac Plains mine in New South Wales by Sumitomo and Vale last year for $1 – showed how keen large corporations were to clear their balance sheets of the cost of rehabilitation.

But the lack of government rigour around environmental bond requirements now meant taxpayers were effectively covering bets by smaller private miners on the recovery of the coal market, he said.

“If the coal market recovers, you make a fortune. If the coal market stays where it is, you walk away. You don’t carry the [true] liability,” he said.

“It’s an uneven bet and the Australian and state governments are actually facilitating that bet where the bet is being held by Australian taxpayers.

“I don’t mind them gambling but when they’re gambling with taxpayer money when taxpayers have no right of reply – I just find that obscene. It’s standard fossil fuel industry practice.”

Buckley said while $121m held for Callide “seemed like a lot of money”, it worked out to some 20 cents per tonne of coal over the mine’s life.

The IEEFA’s own estimate of the cost of rehabilitation ran to more than 10 times that at $2 to $4 a tonne, he said.

Buckley said the “biggest problem” with the system of environmental bonds in both Queensland and NSW, the major coalmining states, was that companies could use consultants to estimate their own liabilities.



State governments were also not required to test a company’s financial capacity to meet rehabilitation costs, he said.

“The [Callide] transaction should not be authorised by the Queensland government if there is no capacity to actually cover liabilities if these liabilities prove to be larger than were provided for by the prior company,” he said.



The Callide mine deal was followed this week by Rio Tinto selling its Mount Pleasant mine in NSW, bringing its total divestment from Australian coalmines to $1.18bn since 2013.



Last month Anglo announced the sale of its Dartbrook coal mine to Nathan Tinkler’s Australian Pacific Coal for up to $50m.

A damning report by the Queensland auditor general in April 2014 found that “financial assurances go nowhere near covering rehabilitation costs with no clear criteria for assessing these”.



“Environmental rehabilitation at the expense of those in the mining industry whose activities cause the damage, continues to remain an unrealised aspiration,” it found.

The report said that despite a recent surge in bonds held by the state, taxpayers remained “exposed “ to the cost of clean-ups should mining companies collapse. Both mining and environment departments were “reluctant to take appropriate action and revoke permits and claim financial assurance” where it fell short, it said.

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Reforms around the regime since the report include the environment department’s gradual takeover of managing financial assurance as the Palaszczuk government continues to review the scope of the bond scheme.

Asked what steps the Queensland government was taking to ensure the financial assurance for the Callide mine was adequate, the DEHP spokeswoman said: “All holders of an environmental authority must pay financial assurance in accordance with the level of environmental disturbance expected.

“Financial assurance is held as a security to ensure operators comply with strict rehabilitation obligations and provides the government with ready access to funds should the operator default on its responsibilities,” she said.