Research shows $17 billion in asset damages
Research conducted by Wood Mackenzie shows that coal producers could have up $17 billion wiped off their asset value in the event of the introduction of the Federal Government’s planned carbon tax.
The Research also indicates that up to $35 billion in new projects could be shelved in early development stages. The findings also suggest that coal miners could be unevenly affected by the tax, with the worst impacts estimated to be up to 35 per cent of asset values, while the average remained at 4 per cent.
The research shows that the worst affected companies included Whitehaven Coal, Gujarat NRE Coaking Coal and Caledon Resources, either because of their low margins or highly gassy mines.
Highlights from Wood Mackenzie’s report:
- Under a carbon permit price of A$23, the weighted average cost per marketable tonne is approximately A$3, creating an increase in cash costs relative to the national average of about 4%. Based on our sensitivity analysis, if permit prices rise to A$40 once trading starts in 2015/16, the average cost per tonne becomes A$4.60. Under permit prices of A$60, the cost per tonne rises to A$6.70.
- The impact of the tax varies significantly by mine. Gassy underground mines are hardest hit by the plan as they release the largest volume of fugitive methane emissions during the mining process; surface mines face much lower costs; and non-gassy underground mines are the least affected.
- The corporate impact of the carbon tax will depend on the mix of coal mines and projects owned by each company. Operators with a focus on surface mining, particularly for metallurgical coal, will be the least impacted by the tax. This includes BHP Billiton, Macarthur Coal and Aston Resources. Companies with a focus on gassy underground mining, and mines with low margins, will face the largest reductions in value. This potentially includes companies like Caledon Resources and Gujurat NRE, whose mines fit in the gassy category.
- The lower operating margins associated with the carbon tax and uncertainty over future carbon permit prices may damage investments in future projects, particularly in gassy underground thermal coal resources.
“The average impact on the industry may seem small in terms of percentage reduction in Net Present Value. However in absolute terms, this will still amount to significant costs to the industry. A 4% reduction in NPV corresponds to a A$8 billion drop in industry value. Moreover, in the long run when the trading scheme kicks in, an upward movement in price will have a greater cost impact on the industry.” Australasia Coal Supply Lead Analyst Ben Willacy said.