Aurizon fails to see writing on the wall for Adani and Australian coal

The Galilee Basin has been one of the biggest flashpoints in the fight against fossil fuels in Australia. There is enough coal in the Galilee to produce a massive 705 million tonnes of carbon each year, which is more than our current domestic emissions. The exportation of coal from the Basin would also require massive ports in the Great Barrier Reef. This Australian natural treasure is already approaching death’s door and would be further damaged by coal port dredging and increased freight shipping.

But it is the Galilee Basin’s characteristic of being an economic dead horse that makes it one of the most logical places to fight for ending fossil fuels in Australia. One of the big economic players in this financial quagmire is Aurizon. Not a pure fossil fuel company itself, Aurizon is the largest rail transporter of coal in Australia. 68% of its revenue comes from coal, the rest from iron ore and freight. Its involvement in the Galilee Basin has already cost it $30 million dollars in write offs so far, as the company’s 2013 deal with GVK Hancock Coal to build 300km of rail infrastructure to the Abbot Point coal port never eventuated. Continual delays to the project and its lack of economic viability have caused Aurizon to write-down its value to zero.

Another highly controversial Galilee Basin project suffering similar financial skullduggery is Adani’s Carmichael coal mine. The coal from this proposed mine would be destined for India. However India’s energy minister Piyush Goyal has set a target to cease thermal coal imports within the next 2-3 years and rely only on domestic coal and renewable energy. The shift away from fossil fuels required to meet the the Paris agreement also threatens the viability of the coal mine. On top of this, a long list of banks (NAB, Standard Chartered, HSBC, Deutsche Bank, etc) are refusing to finance the project. At their annual general meeting (AGM) we asked Aurizon’s board whether they would rule out a partnership with Adani due to reducing coal demand and Adani’s uncompetitive coal exports to India. Aurizon’s chairman Tim Poole refused to rule out the project, indicating a partnership is still on the table:

These examples are just the tip of the rapidly melting iceberg that is Aurizon’s questionable decisions and financial troubles. The majority of Aurizon’s business relies on the transport of coal. In the last few years it has lost millions of dollars on failed projects, and even now 26% of the mines Aurizon services are currently unprofitable. This has caused shareholders of Aurizon to raise ‘question marks over the aggressive expansion strategy of [outgoing Aurizon CEO] Mr Hockridge’. As CEO, Mr Hockridge even acknowledged ‘there will be the rise of renewables; coal will lose market share‘. So whilst his actions do not match his words, in this instance Mr Hockridge is correct.

Thermal coal’s profit forecasts are looking bleak. As the Paris agreements becomes legally binding on the 4th of November this year, the latest science shows at least 80% of current proven and probable fossil fuel reserves will need to be kept in the ground. This means many fossil fuel companies won’t be able to burn their reserves. These stranded assets will gradually or quickly wipe trillions of dollars worth of value from fossil fuel companies and their partners. We wanted to know the board’s view on when this correction would occur and what plans the board has in place to avoid massive losses during the global transition away from thermal coal. Mr Poole ignored the financial analysis, global trends and the latest science, and insisted that ’emerging Asia needs thermal coal for a very, very, very long time into the future’:

Mr Poole’s assertion of Asia’s continuing need for thermal coal is contradictory to what other analysts have forecast. His statements are based on Aurizon’s FY16 Sustainability Report, which uses scenarios created by the International Energy Agency to determine the implications of climate change policy on Australia’s thermal coal exports. Aurizon’s forecasts assume that until 2030 Australia will have a constant 23% share in the global seaborne thermal coal market. It even estimates that if a global climate change policy scenario succeeded in limiting global warming to 2 degrees Celsius, there could be a potential increase of Australian thermal coal exports. However, other analysts forecast that successful global action to reach the 2 degrees target would lead to Asian thermal coal imports declining from 673 million tonnes in 2016 to 433 million tonnes in 2035. This would mean Australian thermal coal exports could decline from 210 million tonnes in 2016 to 135 million tonnes in 2035. In light of this inconsistency, we wanted to know whether Aurizon has modelled the potential impact of a decrease in Australian thermal coal exports and if so, what is the magnitude of this impact. Tim Poole ignored the alternative analysis and successfully dodged the question:

On top of shaky economic assumptions and practices, Aurizon is also not looking too good with its community health assumptions and practices.  A recent case of an above-ground miner being diagnosed with black lung disease demonstrated the disease is not solely confined to underground mining. Aurizon’s FY16 Sustainability Report states that coal dust is “unlikely to result in any additional adverse health effects” for people living along the rail corridor. However, Aurizon’s only safety measures are dust level monitoring and veneering (or shaping) of the coal in wagons.  In light of the black lung revelations, we asked Aurizon to confirm that they would be covering coal trains that are travelling through or near residential suburbs. Turns out they aren’t interested:

So from all this ducking and weaving and flat-out ignorance of expert advice, what did we learn from Aurizon’s 2016 AGM? In a nutshell, Aurizon is failing to learn from past mistakes and is still dangerously exposed to the terminally faltering coal industry. They have demonstrated extremely shortsighted thinking on the long-term viability of thermal coal, which will expose their shareholders to negative impacts in the future. They have also ignored community concerns about the health impacts of coal dust. If they do not face facts soon, they may be facing some disgruntled shareholders.