Relief for overstretched Australian coal port exports?

BHP Billiton today announced approval of the Newcastle Third Port Project, with a capital investment of $390 million, which is BHP Billiton’s share as advised by Newcastle Coal Infrastructure Group (NCIG). The project, to be managed by NCIG, involves the construction of a 30 Mt/y export coal loading facility with a future option to expand to 66 Mt/y. The port is located on Kooragang Island, in Newcastle (Australia), and will include a rail unloader, stockpile facilities, a ship loader and two berths in the south arm of the Hunter River.

BHP Billiton President Coal, Dave Murray, said “This project is an important strategic investment. It underpins our ability to pursue growth options in our New South Wales Energy Coal business and enables us to meet strong demand from our customers.” The first ship loading of coal is scheduled for late calendar year 2010.

Shareholders in NCIG are BHP Billiton 35.5% (through Hunter Valley Energy Coal), Peabody Coal 17.7% (through Excel Coal), Felix NSW 15.3%, Donaldson Coal 11.6%, Whitehaven Coal Mining 11.1% and Centennial Coal Infrastructure 8.8%.

This announcement comes as there are grave supply concerns due to heavy rains in Australia’s eastern coalfields. The BHP Billiton Mitsubishi Alliance (BMA) has announced: “The recent extreme weather across the central Queensland coalfields has impacted production from operations. While we are continuing to assess the full impact of the weather and achieve a safe resumption of operations, coal processing and the loading of vessels will be delayed. As a result, BMA has advised customers that we have declared force majeure.”

NCIG Chairman Tony Galligan said the total finance package, sufficient to cover the expected project construction cost of A$1 billion plus contingencies, has been completed with a range of Australian and overseas financial institutions.

Speaking to members of the consortium as the lease on the Kooragang site was signed, New South Wales Treasurer and Minister for the Hunter, Hon Michael Costa MLC, said as well as creating up to 1,000 extra jobs in the Hunter, the project is expected to increase GDP by A$1.5-billion/y, boost exports by A$1 billion and generate up to 5,000 jobs across New South Wales. “Construction of the coal terminal on Kooragang Island will significantly increase the export capacity of the Hunter Valley coal chain which is currently around 95 Mt/y in 2008”, Costa said.

The majority of coal loaded via the Newcastle port is shipped to customers in the expanding Asian power and steel industries. Newcastle and Hunter Valley coals have been servicing these industries for over 30 years.

The NCIG shiploading facilities will be built to the west of the existing Kooragang shiploaders, with the new stockyards and rail facilities to the southwest of the Kooragang Coal Terminal. Two stacker/reclaimers and a shiploader have been ordered from Sandvik.

Funding for the terminal was raised through three tiers of capital comprising: senior non-recourse debt; subordinated secured notes (SHINs); and preference shares (SHIPS). ANZ has acted as Financial Advisor to NCIG and participated extensively in the capital raising. Blake Dawson were legal advisors. The capital structure achieves low finance costs for users of the terminal and is supported by long term throughput contracts.