the surat basin: unlocking australia’s next coal ... · the surat basin: unlocking australia’s...

FEBRUARY 2015 CONFIDENTIAL

The Surat Basin:

Unlocking Australia’s next coal development region

CONFIDENTIAL

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Reliance on third party information This Presentation was prepared by ATEC Rail Group Limited (ACN 920 7896 3925) (“ARG”). This Presentation may contain information that has been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. This document is not intended to form a legally binding commitment of ARG but is provided as a summary only. Presentation is a summary only and confidential This Presentation contains information in a summary form only and does not purport to be complete. Any information or opinions expressed in this Presentation are subject to change without notice and ARG is not under any obligation to update or keep current the information contained within this Presentation. This document is commercial in confidence. Forward looking statements This Presentation may include forward looking statements. Although ARG considers the expectations expressed in such forward looking statements are based on reasonable assumptions, these statements are not guarantees or predictions of future performance, and involve both known and unknown risks, uncertainties and other factors, many of which are beyond ARG’s control. As a result, actual results or developments may differ materially from those expressed in the statements contained in this Presentation. Statements contained in this Presentation are not guarantees or projections of future performance and actual results or developments may differ materially from those projected in forward looking statements. Past performance is not a reliable indication of future performance. No liability To the maximum extent permitted by law, neither ARG nor its related bodies corporate, directors, officers, employees, agents, contractors, advisers nor any other person, accepts, and each expressly disclaims, any liability, including without limitation any liability arising from fault or negligence, for any errors or misstatements in, or omissions from, this Presentation or any direct, indirect or consequential loss arising from the use of this Presentation or its contents or otherwise arising in connection with it.

Delivering customised freight infrastructure solutions COMMERCIAL IN CONFIDENCE

Important Information

February 2015

Agenda

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About ATEC Rail Group (ARG)

Overview of Queensland’s coal market

Overview of Australian Economy

Benefits of Surat Basin coal

The Surat Basin

February 2014 Delivering customised freight infrastructure solutions COMMERCIAL IN CONFIDENCE

ATEC Rail Group (ARG)

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About ATEC Rail Group (ARG)

Who is ATEC Rail Group (ARG)? ARG has 3 core business interests

ARG has solid financial backing • Dedicated investment capital from ARG’s largest

shareholder, The Energy & Minerals Group (EMG) in USA, an investment firm with in excess of US$17Bn of assets under management in energy and minerals assets

• EMG committed $300m to ARG in 2011

• Capital support to pursue freight rail infrastructure investment opportunities

• Financial capacity to move quickly on opportunities in current cycle

COMMERCIAL IN CONFIDENCE

• Three core business interests: 1. ARG Rail - Below-rail corridor development; rail infrastructure ownership and management/operations

2. ARG Services – Intermodal bulk freight terminals; Specialist rail and terminal services operator (Rail Accredited Rail Infrastructure Manager [RIM])

3. ARG Ports – Specialist bulk commodity port ownership and management

February 2015

• ARG is a privately owned, public unlisted

Australian company

• ARG develops and finances below-rail freight infrastructure to connect bulk commodity assets to coastal ports for export

• ARG is developing almost AUD$2bn in freight rail and terminal infrastructure projects

• ARG is the largest below-rail investor in Queensland’s Surat Basin

• RIM accredited

• ARG was established in 1996, with headquarters in Brisbane and offices in Sydney and Perth

ARG Management Team

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Warren McReight EGM Rail Infrastructure Warren McReight is an engineer with years of experience in developing, consulting and project managing multi-million dollar critical infrastructure projects throughout Australia, with particular interest in roads and rail.

John Balassis Managing Director John is a Chartered Accountant and former corporate advisor with 20 years’ experience in M&A, and has developed a number of multi-billion dollar infrastructure projects in the UK, Spain, Asia and Australia. John was appointed to the ARG Board in 2002 and became ARG’s Managing Director in 2011.

Stephen Walsh EGM Finance & Risk Stephen Walsh has more than 20 years experience in financial and commercial roles across a range of industries in Australia, including construction, financial services and energy. Formerly with CS Energy.

Karyn Mealey EGM Legal and Company Secretary Karyn has been senior partner at a number of large professional services firms, and has specialised in the private rail sector for more than 20 years.

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Theo Psaros, Government Relations Theo is former COO of MetroCoal Limited, and was recently appointed to the Government’s QResources Partnership Group. Theo has more than 26 years of commercial experience within multi-million dollar publicly listed, private company and similar environments.

February 2015

Elizabeth McClymont GM Communications Elizabeth has managed media, sponsors, stakeholders, crisis/issues, and M&A/JV communications across a range of corporate and government positions in Brisbane, London and Europe.

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ARG’s largest investor - EMG

Who is EMG? Significant scale and access to capital

February 2015

• The Energy & Minerals Group (EMG) is a specialised private equity firm with a family of funds focused on investments in the global energy and minerals industry

• Senior investment professionals possess extensive industry experience across all relevant commodities and geographies

• 13 investments in Fund I and Fund II. Investments in Australia include: ARG and Pallinghurst Resources

• Fund lll successfully raised in excess of US$4bn in committed capital in June 2014

• One of the largest resource-focused funds globally with in excess of US$17Bn of assets under management across three funds

• Significant access to co-investment capital if required • Financial capacity to move quickly on opportunities

Pallinghurst

Pallinghurst

ATEC

Iron Ore Holdings

Coronado Coal

Liberty JVUtica JV

INR Energy

High Sierra

Midstream Partners

Ferus

Plains All American

US$6.7 billion of investor commitments1

Overview of Australian Economy


MINING INVESTMENT WILL DECLINE SHARPLY AS CONSTRUCTION ON LNG PROJECTS WIND DOWN NON-MINING CAPEX INTENTIONS HAVE IMPROVED

The Australian economy is moving from mining investment to non-mining investment

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Mining investment (excluding oil & gas projects) is forecast for a dramatic reduction

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Source: ANZ Research; ARG Analysis

Delivering customised freight infrastructure solutions COMMERCIAL IN CONFIDENCE February 2015

NOMINAL & REAL WAGE GROWTH FALLING

…with Australian wage rates stabilising

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…WITH WAGE GROWTH FALLING ACROSS ALL KEY MINING & RELATED INDUSTRIES


..BUT COAL VOLUMES HAVE GROWN

…COKING PRICES HAVE FALLEN

Volume is the core focus of coal producers

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..THERMAL COAL PRICES HAVE FALLEN


Business confidence and conditions remain resilient

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…BUT MINING JOBS HAVE FALLEN APPROX. 7% YEAR ON YEAR

Source: ANZ Research Source: ANZ Research

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BUSINESS CONFIDENCE REMAINS POSITIVE

COMMERCIAL IN CONFIDENCE February 2015

PORTS – MAJOR PROJECT OUTLOOK IRON ORE & STEEL PRICES

Investment in bulk commodity rail & port infrastructure is continuing, albeit at a slower pace

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Source: ANZ Research

Forecast Forecast


…CONSTRUCTION WORK IS DOWN …CASH RATES ARE DOWN

…which is creating an environment to bring projects to market more cheaply and quickly

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Source: ABS, ANZ Research


Overview of Queensland’s Coal Market

February 2014 16 COMMERCIAL IN CONFIDENCE Delivering customised freight infrastructure solutions


Queensland’s coal basins

Galilee Basin

Bowen Basin

February 2015

• First major coal province in Queensland • Source of premium coking coal, PCI and thermal coal • Production of approx 190mpta for both domestic use

and export

• Emerging source of thermal coal for export

• Current production of approx 9mpta exported via Port

of Brisbane

• Forecast production in excess of 40mtpa

Surat Basin

• Future source of thermal coal for export • Forecast production in excess of 100 mtpa • Significant Indian investment (Adani, GVK) • No current export production


Queensland’s two emerging coal basins

Galilee Basin

February 2015

Railway: • 500+km to port (Abbott Point) • Rail corridors not finalised –proponents continuing land negotiations • Pending final Queensland Government approvals Ports: • Multi-billion dollar expansion of Abbott Point required CAPEX • In excess of AUD$10bn required to invest in opening up the Galilee

Railway: • Access to two ports (Gladstone & Brisbane) • 210km rail already in operation from Moura to Gladstone; 350km of

rail from Miles to Port of Brisbane • SBR is an approved greenfield rail corridor (SDA gazetted) – first in

Australia • Rail corridor land is ready to be purchased subject to committed

demand CAPEX: • Approx AUD$1.5bn – AUD$2.0bn to invest in the coal chain • Gladstone ports in operation – RG Tanna, WICET • Port of Brisbane expanding

Surat Basin

Port capacity expansions over next 5 years are still being planned

Now Planned

Hay Point (incl. DR Bay)

44 68

44 85

Gladstone 70 85

WICET 27 70

Abbott Point 21 50

Brisbane 7 10

TOTAL 237 344

Galilee (planned) 0 60

237 404

Now Planned

Newcastle PWCS 113 145

Newcastle NCIG 53 66

Port Kembla 20 40

Abbott Point 21 50

TOTAL 207 301

Now Planned

Esperance 10 30

Geraldton 10 20

Port Hedland 250 400

Dampier 160 210

TOTAL 430 660

NSW port capacity - Coal

Source: Port annual reports; ARG analysis

Queensland ports capacity - Coal WA port Capacity – Iron Ore

412

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348

412

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The Surat Basin


Surat thermal coal basin has good characteristics

• 6bn tonnes of mining resource could support >50mtpa for next 100 years

• Mining has already commenced with a track record supplying to Australian domestic demand and Asia

Significant Coal Resource

• High energy (6,000-6,800kcal/kg) • Low emissions (up to 15% lower carbon dioxide emissions than

other thermal coals)(1)

• Significantly less dust when handling and storing (2)

High quality coal – good environmental properties

• Generally low strip ratio • Open cut properties • Thick consistent seams

Cost effective

• Brownfield infrastructure and port space approx 350km (compared to other developing basins @ 500km)

• Rail infrastructure approved, opportunity for expansion

Close proximity to ports and rail

Notes: 1. Eco-friendly coal for China – Value for the Environment and Value for the Power Generator, Juniper L, 2013; ARG analysis 2. Utilisation of Walloon coals of Southern QLD for Power Generation Dept of Mines and Energy Queensland, 1999

• Investors in mines include Mitsui, Yancoal, Glencore, New Hope, Stanmore Coal, SinoCoal Resources

Strong counterparties


ARG is committed to the Surat Basin


Surat Basin Rail (SBR) – Wandoan to Banana

Central Surat Rail (CSR) – Wandoan to Miles • ARG awaiting approval from Queensland Government to lease CSR

corridor • Milestones achieved to date: - FIRB granted - EPBC confirmed (controlled action) - IAS completed & submitted to the State - Draft EIS TOP agreed with CoG - Capacity EOIs received from potential customers, >20mtpa • Port capacity at Brisbane; and Gladstone via SBR

…which is why ARG has invested in two below rail projects in the Surat

• Project is construction ready – delayed due to market conditions • SBR has ‘first mover advantage’ • Milestones achieved: - SDA approved rail corridor gazetted - shortlisted construction bidders - secured all necessary licenses - secured environmental approvals - Surat Basin Rail Bill - Build time 2+ years • Potential to deliver an additional +30mtpa of volume on Moura network

http://suratbasinrail.com.au/

http://www.centralsuratrail.com.au/

Rail infrastructure in the Surat is “shovel ready”, but needs committed volume

What does it need:

1. Miners with mining leases Committed volume off take with users Credit worthy counter parties to support

infrastructure investment

2. Surat Chain Coordination Port capacity is emerging without the need for

more capital Moura rail upgrade (well advanced) Miner finance (requires mining lease)

3. Supportive thermal coal market

Current price sub US $70/t needs to be higher AUD exchange rate sub US$0.90c (for sustained

period)

What does the project have:

Approved rail corridor

Environmental Approvals (Commonwealth & State)

Declaration of the Surat Basin Infrastructure Corridor Area (SBICA)

Granting of Material Change of Use approvals

Shortlisted selection of the preferred construction bidders (with pricing)

Access Policy and draft customer and commercial agreements

Landowner Interface Deeds for land access

Issuance of infrastructure agreements to local Councils and State Government departments (camp sites, roads, etc)


Surat Project Cash Costs (AUD/t fob)

Current Spot (a)

ARG understands the economics of the precinct

Source: ATEC Rail Group/SD Insights – these costs are indicative and based on assumptions and estimates from publicly available information. There has been no due diligence undertaken directly with mines disclosed.

Notes: (a) Based on US$60/t Newcastle benchmark at AUD$0.85cents (b) Cash costs represent an ongoing business position and does not include a return on investment; (c ) Costs are shown on a per tonne basis and ranked according to forecast energy equivalent FOB basis (6322 kcal/kg gar)


Planned mines/expansions in the Surat Basin exceed the initial tonnage required to achieve bankability of approx 15-20mtpa

Mine Owner Potential Tonnage

Taroom New Hope 51% Mitsui 49% 2.0

Elimatta New Hope 2.0 - 5.0 Collingwood New Hope 51%

Mitsui 49% 4.0

The Range Stanmore 100% 5.0 Wandoan Xstrata 75%

Itochu 12.5% Sumisho 12.5%

10 - 20.0

Columboola SinoCoal 100% 2.0 - 5.0

Cameby Downs Mine Yanghzou 100% 2.0 - 5.0

TOTAL potential mtpa 27.0 – 46.0

February 2015

Source: ARG analysis; Annual reports

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1. Moura link 2. Moura line upgrade

Our focus right now is to remove costs and streamline the rail infrastructure issues to align with the required tonnage profile of 15-20mtpa

Rail Corridor Owner Estimated CAPEX

Current Status

1. Moura Link

100% - Aurizon

$550m (Estimate)

• Pre-feasibility work complete • Awaiting outcomes of Surat miner

commitment • This may not be needed until tonnage exceeds

30mtpa from the Surat

2. Moura Line

100% - Aurizon

$200m Stage 1 (for WICET customers) is completed and was included as part of WIRP for the initial 27mtpa of WICET capacity. Stage 2 (for SBR customers, plus other new Moura customers) still to be completed: • Subject to Surat Basin miner commitment • Pre-feasibility completed • Being aligned with SBR/Port expansion

3. Gladstone Port Corporation

100% Government owned corporation

Minimal • Currently has capacity for 70mtpa • Capacity is emerging for another approx

20mtpa • Opportunity for Surat miners to target this

capacity

4. Wiggins Island Coal Terminal (WICET)

User miners 100% owned

Minimal • Stage 1 due for completion in mid 2015 for 27mtpa

• Construction currently 80% complete • Capacity emerging within this first stage of

WICET to meet the required initial tonnages of the Surat

3. Port of Gladstone 4. WICET


Benefits of Surat Basin Coal


Surat Basin coal quality


High moisture content (should not cause utilisation issues) Technically below average ash content Very high volatile matter indicating high reactivity and positive combustion characteristics Very low nitrogen content Low sulphur content (which will impact positively on pricing and lead to lower SO2 emissions Low HGI Low iron plus calcium concentration, indicating a low propensity for ash deposition Carbon-in-ash is low compared with competitor coals, and less than the 3% limit for fly ash usage in Japan High volatile matter content and low nitrogen content (conducive to producing low NOx emissions (using low Nox burners)

Surat Basin coal has the following qualities:

1 2 3

4 5

6 7

8

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February 2015

Source: (1) CQG Consulting ‘ATEC Rail Group Marketing Advice’ – Dec 2014 (2) A&B Mylec Pty Ltd ‘Technical Report – A typical Surat Basin Coal’ – Dec 2014

Summary of coal quality data for a typical Surat Basin Coal(1) Coal Quality Unit Basis Typical Surat

Coal Mine 1 Example

Mine 2 Example

Mine 3 Example (In operation in the Surat)

Total Moisture % Ar 13.9 15 12 13

Proximate Analysis • Ash • Moisture • Volatiles • Fixed Carbon

% % % %

ad ad ad ad

10 7.9 41.8 70.2

9 9.7 41.5 39.8

10 6 44.6 39.5

11.3 7.8 42.2 38.7

Calorific Value • MJ/KG ad • Kcal/Kg ad • Kcal/Kg ar

27.07 6464 6043

26.3 6280 5912

26.4 6300 5961

26.42 6309 5953

Ultimate Analysis • Carbon • Hydrogen • Nitrogen • Sulphur • Oxygen

% % % % %

daf daf daf daf daf

77.5 5.99 1.11 0.53 14.92

77.4 5.9 1 0.38 15.32

78 6.3 1.1 0.4 14.2

77.5 6.07 1.05 0.43 14.95

HGI 39 35 35 33

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(1) Source: A&B Mylec Pty Ltd ‘Technical Marketing Report – A typical Surat Basin Coal’ – Dec 2014

February 2015 COMMERCIAL IN CONFIDENCE Delivering customised freight infrastructure solutions

SURAT COAL DEVELOPMENT ALLIANCE ARG’S COMMITMENT TO THE SURAT BASIN

ARG is committed to the Surat Basin

• ARG has already invested considerable capital in freight rail infrastructure in Surat Basin

• ARG is now the largest investor in Surat Basin freight rail infrastructure

• Central Surat Rail – consortium with FIRB approved shareholders

• Ongoing commitment to Surat Basin Rail (SBR) AND Central Surat Rail (CSR)

• Central Surat Rail – ww.centralsuratrail.com.au • Surat Basin Rail – www.suratbasinrail.com.au

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• ARG is working with miners to open up coal reserves in the Surat Basin

• Formed an alliance of 9 miners to explore options to open up the Surat so miners can reach Queensland’s export ports

• Members of the Alliance are:


http://www.centralsuratrail.com.au/

http://www.suratbasinrail.com.au/


Contact ARG

SYDNEY John Balassis Level 18, 25 Bligh Street SYDNEY NSW 2000 Ph: 02 9226 4200 www.ateclimited.com.au

BRISBANE Level 13, 120 Edward Street BRISBANE QLD 4000 Ph: 07 3031 1700

February 2015

http://www.ateclimited.com.au/

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