Adani remote prospects

• The seaborne thermal coal markets remain oversupplied and demand has weakened globally for the second year in row. Structural decline of demand is evident.
• The remote location and lack of any commercial infrastructure gives the greenfield Carmichael proposal of Adani Enterprises a prohibitively high capital cost.
• The thermal coal deposit of Carmichael is low energy and very high ash relative to Australian export grades. This makes the project economics extremely challenging.
• The strategic logic of the Galilee that attracted Indian power conglomerates in 2010/11, during the height of the coal boom, has been reversed. The Indian Energy Minister, Piyush Goyal, has made it his clear priority to cease thermal coal imports near term, and is pursuing a range of domestic solutions to India’s energy security needs.
• The Adani Group is increasingly accepting this strategic shift in India, moving rapidly to align its new project pipeline to include Indian grid transmission, domestic Indian coal and an up-scaling of increasingly competitive solar infrastructure investment.
• The Adani Group has announced US$35bn of new strategic project proposals in 2015 alone, all in India. The Group is already highly geared, and the Carmichael coal mine require billion dollars of equity funding. The tension between newly announced projects of Adani’s Indian expansion undermines the financial capacity for the Carmichael coal project, and brings into question the Group’s commitment to the project.
• With the Carmichael coal proposal commercially unviable at current or forecast thermal coal prices, the project is increasingly unbankable. Fifteen of the world’s largest financial houses have either ceased working on this proposal or ruled out involvement, including both CBA and Standard Chartered, where advisory mandates have expired.
• Continued momentum in technological developments underpins the scaled up commercial rollout of renewable energy and energy efficiency globally. As such, the strategic ‘moment’ for large-scale export-focused greenfields coal mines has passed.

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