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West Australian Mine Owner Reports More Losses, Shows No Ability to Cover Clean-Up Costs

June 01, 2016
Tim Buckley

In reporting a net loss of US$40 million for the year to March, Lanco Infratech of India, owner of the loss-making Griffin Coal Mine in Western Australia, has notched up its fifth consecutive year of losses.

The performance only compounds the clear and ongoing state of financial distress for this Indian conglomerate. Net debt rose 15 percent year on year to US$6.32 billion, while shareholders funds shrunk again, by 15 percent, to US$115m. Net debt is 55 times net shareholders funds.

Yet even in the face of such weakness, the Australian government’s Department of the Environment has seen fit to grant approval to Lanco’s much delayed and financially risky thermal coal export facility proposal at Bunbury. This is despite the Griffin Coal Mine having operated at a loss ever since the peak-price, top-of-cycle acquisition of the mine by Lanco in 2011 for A$470 million. Revenues from the Griffin mine were down 12 percent year over year  to US$76m, and a gross cash-flow loss was reported for every ton of coal sold.

Additional detail:

  • Operational results continue to run below expectations in India due to ongoing legal disputes with state electricity distribution companies, natural disasters, less than anticipated delivery of fuel for Lanco’s power generation facilities and asset forfeitures and contract cancelations with the India government. Interest costs continue to be capitalized against new projects that are not being commissioned as planned due to various ongoing delays.
  • Net interest expense and forex items were a combined US$361 million for 2015/16, down 32 percent year on year but still 21 percent more than earnings before interest and tax (EBIT).
  • Revenues from the Griffin Coal Mine in West Australia were -12% yoy to US$76 million, and a gross cash-flow loss was reported for every ton of coal sold. Griffin’s loss before tax, interest and depreciation was US$7 millionfor the 2015/16 year.
  • The annual results contain a number of Audit Qualifications, and the Board of Directors continue to carry the book value of businesses at historic cost even though the recoverable value and ongoing losses would bring this assumption into clear question. For Lanco Resources International, the losses are beyond the net worth of the company.
  • Lanco Infratech continues to operate under a Strategic Debt Restructuring Scheme since 2013/14 under relatively new Reserve Bank of India guidelines. This is similar to Australia’s Corporate Administration but not as effective.
  • Net debt rose US$732 million over the year to a record US$6.3 billion at the end of March. This was despite the sale of the Udupi coal power plant to Adani Power over this period.

Financial distress remains, in a word, acute.

IEEFA would highlight, too, that the Griffin mine operates with an exemption from having to hold rehabilitation bonds with the Western Australian government to cover known post-mine closure and environmental rehabilitation costs. The entity has no capacity to fund these obligations, and the government is doing nothing to change the situation or hold the company accountable for its actions.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.

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Tim Buckley

Former Director Energy Finance Studies, Australasia, Tim Buckley has 25 years of financial markets experience, specializing in equity valuation, including as a top-rated analyst and as co-founder and managing director of Arkx Investment Management.

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