Bloomberg News

Vale Says Galilee Miners Need to Build Joint Rail to Save Costs

November 23, 2011

Nov. 23 (Bloomberg) -- Vale SA, the world’s biggest exporter of iron ore, said miners planning about $32 billion of coal projects in Australia’s Galilee Basin should build a jointly owned railway to save costs and speed development.

“Certainly before the end of next year, we need to be well under way with a rail solution,” Jason Economidis, director of growth projects for Vale Australia, said in an interview in Brisbane today. “If we don’t have the port and rail solution sorted, it makes it very difficult to develop a mine.”

Gina Rinehart, Australia’s richest person, and fellow billionaire Clive Palmer are among developers planning to develop coal mines in the Galilee Basin to meet demand for coal from Asia. Vale may spend $8 billion developing the 30 million metric-ton-a-year Degulla project in the region.

“If all providers built their own rail, that would cost north of $4 billion each,” Economidis said during a presentation. “Based on the low margins associated with thermal coal, individual rail corridors are very unlikely to be viable,” according to his presentation slides.

Rinehart’s Hancock Prospecting Pty. is developing a $10 billion project with India’s GVK Power & Infrastructure Ltd. that is scheduled to produce its first coal in 2015 and Palmer is planning the $8.1 billion China First project. Adani Enterprises Ltd., India’s biggest coal importer, may spend $6.5 billion on the Carmichael mine.

Coal Demand

Rinehart and Palmer are each proposing to build close to 500 kilometers of rail to ship coal to the port of Abbot Point. Adani is also exploring its own rail options, Jignesh Derasari, chief executive officer for Adani’s mining division in Australia, said yesterday.

Australian resource companies plan A$430 billion ($421 billion) of new projects to meet demand from China, the biggest consumer of the smaller nation’s exports. Thermal coal prices are likely to rise over the next two years, supported by demand in Asia, Credit Suisse Group AG said in a note dated Oct. 4.

Vale is spending $24 billion globally this year on resources investments, including developing coal mines in Colombia and Mozambique. Vale wants to boost coal output to 40 million metric tons by 2016, to become its third-biggest revenue stream behind iron ore and fertilizer.

--Editors: Rebecca Keenan, Keith Gosman

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net


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