Contractor to share Blair Athol risks
TERRACOM ambitious plan to restart Blair Athol by Christmas creating 100 jobs.
Wednesday 28 September 2016
Terracom has announced they have a binding agreement to buy the mothballed Blair Athol mine near Clermont and hope to mine first coal no later than Christmas.
Neither party has released detail on the final value of the deal other than that a nominal $1 was paid by Terracom to confirm the sale.
However, the real cost to Terracom of buying Blair Athol is the sum of all the liabilities and costs associated with owning and restarting a mine which is on care and maintenance.
The one item confirmed in the deal is that Rio Tinto as vendor has provided $80 million to Terracom which will be held by the Queensland Government, and used to pay for the very large mine environmental rehabilitation costs that miners are by law required to undertake.
Since the mine is currently not operating - it is by definition a liability. So to make it a productive income producing asset, the next big expense for Terracom is getting the mine, it’s dragline, and other ancillary machinery going again.
Using Stanmore Coal’s experience restarting Isaac Plains as a guide, these costs are likely to be in the tens of millions of dollars.
Which is where the deal gets interesting and a bit obscure.
In a single sentence in an investor report, Terracom said: “re-commissioning costs are to be funded by the contractor” - which would seem like a good deal for Terracom.
In response to a question from Shift Miner on how that would work, a spokesperson didn’t release much detail.
“It is standard practice for a contractor to enter into this type of commercial arrangement when recommissioning a mine in the current environment,” they said.
“More details will be made available as soon as possible.”
According to industry experts, the most likely scenario here is that contractors desperate for work will have incorporated the cost of re-commissioning part or all of the machinery they will be operating into their tender - which is a brave move given that restart costs are notoriously difficult to predict.
However, if they get it right, that punt could unlock a lucrative work contract, at a time when there are not many around.
Terracom is only targeting about two million tonnes of coal a year from the mine, which is a lot less than the peak of 11.3 million tonnes produced in 2009 by Rio Tinto.
However it has previously said reopening the mine will generate 100 local jobs, which will be a shot in the arm for the Clermont economy.