Tuesday, 30 October 2012

Gold Plating versus Making Do

The power industry has come in for recent criticism as it spends billions - and passes that on to consumers - so forty hours of extreme annual peak load can be catered for. Likewise governments have time and time again gone looking for the 'best' solution to urban infrastructure projects rather than seeking the most affordable. Again, someone else has to pay for it - or, more usually, no shovels ever hit the ground. And, as infrastructure goes, we're seeing the same thing in the resource industry too...perhaps to the detriment of even getting that primary product out of the ground. Recent news reports out of India suggest the GVK/Hancock consortium planning a 30-million tonne thermal coal mine at Alpha and an associated 495km rail line to Abbot Point is having trouble raising the $6.4-billion for the project. A large part of that project cost is the heavy-haul rail line, which will exceed $2-billion to race low value thermal coal across several large river valleys via the most direct route awaiting ships at Abbot Point. This of course is the 'best' transport solution for the mine. However at $2-billion, and perhaps threatening the mine proceeding at all, is it the most affordable solution?

The answer is probably no. And here's why - an existing low volume narrow gauge rail route already exists in the vicinity of the mine. So far its current government ownership, low capacity and more circuitous route of about 650km (via Emerald and Blair Athol) has discounted this corridor from consideration...but let's have a look at it. Fifty-five percent of this existing open-access corridor is already available to 1450m 12,000-tonne coal trains, and the cost in upgrading the remaining 291-km to this standard is around $405-million (just twenty percent of the GVK/Hancock's estimated cost). There are few if any land resumptions required or environmental barriers and the most serious operational issue, the Drummond Range, was partly deviated in 1998, with remaining works at that time being valued at only $12-million. No doubt operations of this "Central Line" corridor would be higher, however compared to the absence of any profits if this greenfield project cannot reduce its establishment costs, maybe a few extra cents per tonne over the life of the mine would be better spent than those the consortium are currently trying to save.


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