In a landmark decision handed down by a NSW court on Friday, a coal mine has been rejected on the basis that it would generate too many greenhouse gas emissions.
Private explorer Gloucester Resources was reportedly told that it would not be allowed to build its Rocky Hill coal mine in NSW’s Hunter Valley – the State’s key coal mining region.
“An open cut coal mine in this part of the Gloucester valley would be in the wrong place at the wrong time,” chief judge Brian Preston said in his written judgment.
“Wrong place because an open cut coal mine in this scenic and cultural landscape, proximate to many people’s homes and farms, will cause significant planning, amenity, visual and social impacts.
“Wrong time because the GHG [greenhouse gas] emissions of the coal mine and its coal product will increase global total concentrations of GHGs at a time when what is now urgently needed, in order to meet generally agreed climate targets, is a rapid and deep decrease in GHG emissions.”
It’s the first time that a court in Australia has put on hold a coal mine because of its potential impact on the climate from emissions.
It’s a bit of a double-edged sword because market watchers see it as good news for the ASX-listed coal guys that are already producing, but on the other hand it potentially throws a spanner in the works for explorers working to bring a project into production.
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“I think it adds another hurdle to the already significant regulatory permitting environmental hurdles in place to get new coal mine capacity built,” commodities strategist Lachlan Shaw told Stockhead.
“From a supply/demand perspective it does mean that it’s more likely that we will see slower new mine supply growth in Australia, if at all, and from that point of view coal prices are likely to be higher than otherwise because the market would be set to remain tight.
“You would anticipate potentially that Australian coal exports could perhaps lose some market share in terms of volume.
“It’s one more of a growing list of factors that are keeping the coal supply-side tight and I guess the impact from here depends on to what extent this decision is upheld in future decisions.”
Cash cow
Coal is one of Australia’s biggest money makers, with NSW and Queensland the two largest coal mining states in the country.
It is the number one export for both states, but 80 per cent of Queensland’s exports are coking coal, while the majority of NSW’s exports are thermal coal.
Australia’s thermal coal exports, however, have been “flatlining” for the past four years according to Tim Buckley, a director at the Institute for Energy Economics and Financial Analysis (IEEFA).
While revenues are at record highs, volume peaked four years ago.
What is bizarre though is that Gloucester Resources’ Rocky Hill mine was going to produce mostly coking coal – an essential component of steelmaking. China in particular favours Australia’s coking coal because it is better quality than what is sourced from other countries.
“The NSW government has no climate policy, it makes no differentiation for a high-quality mine versus a low-quality mine,” Mr Buckley told Stockhead.
“So in the absence of a climate policy, ironically coking coal gets thrown under the bus with thermal coal.
“If the NSW government actually had a climate policy, we’d be able to differentiate between the high versus low-quality, high-value versus low-value mines, but in the absence of a policy, any new coal mine brings dramatic emission increases.
“And while they might be small on a global scale, they’re all additive to the total emissions already in place.”
Mike Cooper, a senior editor covering the coal market for S&P Global Platts, told Stockhead that the Rocky Hill mine legal case could set a precedent for other mine projects to be challenged on the same basis.
“At the very least the judgment is likely to extend the time taken for coal mine projects to clear legal and environmental hurdles in the future,” he said.
“There is already a dearth of new coal mine projects in Australia, with few recent mine openings, the latest isolated example being MACH Energy’s Mount Pleasant project in the NSW Hunter Valley that started up last month.”
Who’s unlucky enough to be in NSW
There are about 18 small cap explorers (see list below) looking to bring coal mines into production in Australia and three of those have projects in NSW.
| ASX Code | Company | Project Location | Market Cap | Price Feb 8 (Intra-day) | 1-Year Return |
|---|---|---|---|---|---|
| AHQ | ALLEGIANCE COAL LTD | QLD | $26.6m | 0.05 | -0.133333 |
| AUH | AUSTCHINA HOLDINGS LTD | QLD | $3.3m | 0.003 | -0.4 |
| AQC | AUSTRALIAN PACIFIC COAL LTD | NSW (Hunter Valley) | $35.1m | 0.7 | -0.333333 |
| B2Y | BOUNTY MINING LTD | QLD | $33.1m | 0.086 | -74% (only listed since June 19, 2018) |
| BCB | BOWEN COKING COAL LTD | QLD | $12.1m | 0.02 | 0.25 |
| GPP | GREENPOWER ENERGY LTD | VIC | $4.7m | 0.003 | -0.785714 |
| IEC | INTRA ENERGY CORP LTD | WA | $5.4m | 0.014 | 0.166667 |
| LNY | LANEWAY RESOURCES LTD | NSW | $22.1m | 0.006 | 0.5 |
| MMI | METRO MINING LTD | QLD | $206.7m | 0.15 | -0.423077 |
| MRV | MORETON RESOURCES LTD | QLD | $18.6m | 0.006 | -0.444444 |
| NCR | NUCOAL RESOURCES LTD | NSW | $6.9m | 0.009 | 0.285714 |
| REY | REY RESOURCES LTD | WA | $53.1m | 0.25 | -0.152542 |
| SMR | STANMORE COAL LTD | QLD | $273.1m | 1.065 | 0.580952 |
| TER | TERRACOM LTD | QLD | $256.1m | 0.645 | 1.931818 |
| BCL | BUNJI CORPORATION LTD* | QLD | $1.0m | 7.8 | 0 |
| IOR | INDIORE LTD** | QLD | $15.0m | 0.069 | -0.76 |
| LRM | LUSTRUM MINERALS LTD | QLD | $3.15m | 0.09 | -0.3 |
| RMT | RMA ENERGY LTD | QLD | $2.1m | 0.001 | -0.5 |
*BCL has been suspended since July 2017.
**IOR has been suspended since December 2018.
Australian Pacific Coal (ASX:APC) is developing its Dartbrook project in the Hunter Valley and Laneway Resources (ASX:LNY) owns the Ashford coking coal project.
NuCoal Resources (ASX:NCR) is exploring on the Savoy Hill project in the upper Hunter Valley.
While the decision to reject a mine based on its greenhouse gas emissions may be problematic for developers, producers are in a much better position.
“It actually doesn’t necessarily have to be bad news for particularly listed established coal companies,” IEEFA’s Mr Buckley said.
“The last thing the incumbent industry needs is to have the market flooded with more new capacity coming on stream.
“If you’re a developer of a new project, you’ve got to seriously reassess the stranded asset risk of your proposal, whereas if you are an existing coal miner, ironically your value has probably just gone up.”