GVK Coal Infrastructure (Singapore) Pte Ltd (GVK Hancock) and Aurizon have reached a significant milestone towards their proposed transaction for the joint development of a rail line and a new coal terminal at the existing Abbot Point Port.

This is expected to unlock the Galilee Basin’s coal resources, including GVK Hancock’s Alpha, Alpha West and Kevin’s Corner coal projects.

As announced by the parties in March 2013, under the proposed framework, Aurizon would acquire a majority (51 per cent) interest in Hancock Coal Infrastructure Pty Ltd (HCI), which owns GVK Hancock’s rail and port projects, and would invest through upfront consideration on completion of the transaction and deferred the consideration at financial close of each phase of the projects.

Equity, debt funding

The proposed arrangement is intended to provide equity and debt funding (including through third party debt finance) for the projects to reach financial close.

The parties have made further progress over the last few months and have reached alignment on a rail solution and on commercial terms for the proposed transaction such as governance, timing of milestones, funding and conditions for completion.

Rail solution

The proposed rail solution means that for an initial stage, only 300 km of the 500 km of new corridor and track under the original GVK Hancock proposal will be constructed before connecting into existing Aurizon infrastructure.

This will also allow a phased development at the Abbot Point T3 terminal to match the volumes and ramp-up, thereby materially reducing the initial cost of infrastructure.

Under the proposal, the southern rail connection would be built to narrow-gauge specification to carry trains of up to 25,000 tonnes, with the option to consider an expansion to a full greenfield line (narrow or standard gauge) if increased tonnages later justify the additional investment.

Rail, port infrastructure

The proposed open-access rail and port infrastructure being progressed by GVK Hancock and Aurizon also facilitates a staged consolidation of tonnes from multiple miners in the Galilee and the Bowen Basins.

This will deliver significant benefits for regional communities by reducing the impact on agricultural land and natural environment.

G.V. Krishna Reddy, Chairman of GVK, said: “We have made significant progress towards realising this project. This milestone symbolises our common vision and I look forward to progressing this historic infrastructure development together with Aurizon.”

Aurizon Managing Director & CEO Lance Hockridge said: “There’s been considerable work by both parties over recent months to better define the rail transport solution for the project, both from an engineering and a commercial perspective. We can see from our assessment that GVK Hancock’s coal assets are very well advanced.”

“This also aligns with government objectives — getting early tonnes out of the Galilee, at lower cost by tapping into existing infrastructure and consolidating tonnages onto a common corridor,” he said.

Collectively the proposed development of the rail and port infrastructure is expected to attract an investment of $6 billion and provide over 1,300 jobs during construction and around 300 long-term jobs once operational.

Queensland Govt policy

The proposed rail solution is located within the Queensland Government’s preferred rail corridors for the development of the Galilee Basin as defined under Queensland Government policy announced in June 2012, and aligns with the recently-released government policies on developing the Galilee Basin and the 30-year strategy for mining in Queensland.

Completion of the proposed transaction, including the upfront consideration from Aurizon, would be subject to the satisfaction of a number of conditions, including satisfactory due diligence, final board approvals, third party approvals (some of which are outside the control of the parties) and negotiation of final terms and definitive documentation.

>rishikumar.vundi@thehindu.co.in