Glencore, the Anglo–Swiss multinational commodity trading and mining company, along with five other partner companies who all support the costliest coal port in the world in Australia are to pay an additional annual charge of A$150 million due one of their partners under-going a restructuring plan in order to cope with falling commodity prices.
The extra charge will affect those who remain to support the A$2.6 billion coal port called, Wiggins Island Coal Export Terminal (WICET).
Glencore and seven other partner companies initiated plans to develop WICET in 2008 amid the coal boom at the time, however prices have dropped by an astonishing 75 per cent due to a worldwide glut, the snail paced China economy and the use of alternatives to coal such as natural gas.
The companies together, under the assumption that the coal industry would perform strongly, all agreed to a charge for port fees of 27 million tonnes of coal no matter if they were exporting that amount or not. This meant that they had accepted volume charges which were five times the amount of any other coal ports at around A$20 per tonne whereas RG Tanna coal port charges a mere A$5 a tonne.
In addition to the companies’ troubles, including the troubles of their lenders, all 19 of them who are owed a total amount of around $3 billion, the current coal market prices have managed to force two of WICET’s previous owners, Cockatoo Coal and Bandanna Energy, into administration. Both of the companies were badly affected by port charges for volumes of coal which they were unable to produce in the first place following the drop in coal prices that fell to a nine-year low and funding for their ventures disappeared.
Stephen Longley of PBB Advisory, Cockatoo’s administrator resulting from the restructure this month said:
“The world didn’t unfold, the coal mining sector didn’t unfold, and the mine development didn’t unfold the way everyone was hoping for. Then they were left paying four times what they could pay shipping through the terminal next door.”
When the plans were sets at the beginning the vision for WICET was that it would ship 120 million tonnes of coal per year. It would be have been provided for by Xstrata’s company, Wandoan, which could have been Australia’s biggest coal mine. However, Glencore’s acquisition of Xstrata in 2013 saw Wandoan pushed aside.
Due to Cockatoo and Bandanna’s default, the remaining partners which include Glencore, Wesfarmers, Baosteel’s Aquila Resources, Yancoal Australia, Guandong Rising Assets Management’s Calendon Coal and New Hope Corp are to pay up the additional yearly due of A$150 million per year to make the outstanding amount up.
One senior director at Standard and Poor’s, Thomas Jaquot said:
“Every time one drops it makes it more challenging for the rest.”
Glencore, however, commented that the additional costs they would be incurring per year did not pressure the company since there are provisions in place that will cap charges should other mining partners withdraw.
The mining giant stated in an email:
“The incremental costs to Glencore imposed by exiting users at WICET are contained by commercial protections and must be viewed in the context of our greater global coal production business.”
Glencore will be baring the burden of 40 per cent of the costs resulting in a total additional amount of A$60 million per year along with the A$218 million per year it was currently paying.