Deloitte, Peabody And The ‘Cheapest Mine In The World’

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I don’t want to reduce New Matilda to the level of a seedy gossip mag, but I’m going to stay on the topic of steamy love between economics consultants and coal companies.

Like when you’re on a crowded train and a couple can’t stop desperately pashing, it is impossible to ignore what’s going on between US-based coal company Peabody and their new economists, Deloitte Access Economics.

Most people wouldn’t even think of shacking up with Peabody. Their ‘coal-only’ business plan has gone down like halitosis with investors for the last five years as their share price and market capitalisation has crashed:

IMAGE: Yahoo Finance. Peabody Energy value over time.
IMAGE: Yahoo Finance. Peabody Energy value over time.

But despite just about everybody saying that Peabody are just no good, Deloitte’s love is blind.

Peabody own the Wilpinjong mine out near Mudgee. It’s a reasonably large mine, producing around 10 million tonnes per year, but its coal is high in ash content (that’s bad) and mostly gets sold to power stations in NSW. Peabody want an extension so they can dig up more coal to export.

So a nearly-broke company wants to extend a marginal mine. Deloitte clearly think they are some sort of Richard Gere, who can turn around the down-and-out sex worker, Julia Roberts, with their love…or should that be the other way around?

Anyway, they’ve come in to do the economic assessment of the Wilpinjong extension.

The stock market says that all of Peabody’s 26 mines are worth only AUD$113 million. Deloitte love them long time saying that the Wilpinjong mine plus extension is worth AUD$1.1 billion.

Let’s be clear – Deloitte say that a low-quality mine is worth almost ten times more than the entire parent company. This means one of three things:

  • The world’s investors have got it totally wrong on Peabody.
  • Deloitte have got it totally wrong on Wilpinjong.
  • They’re both right and it is only the great value of the Wilpinjong expansion that is keeping Peabody afloat.

Even if we assume it’s option three, is a terminally broke company the sort of operator NSW wants running a mine and potentially leaving behind some big, expensive holes in the ground?

Looking hard at the Deloitte assessment, however, it’s clear that some pillow talk is going on.

Peabody and Deloitte got very close together and felt all tingly when they estimated the operating costs of the mine. On a per tonne basis, they whispered to each other that the existing mine can produce coal for an average cost of $AUD26.96 per tonne. (Divide costs on p28-29 by volumes on p22)

If that’s right, then Wilpinjong is probably the cheapest mine to operate IN THE WORLD. To see this, convert AUD$26.96 to US dollars. At today’s rates that’s US$20.04. There is barely a mine in the world that can produce at less than US$40 per tonne, let alone $20, see Figure 3 here.

Hopefully the NSW Planning Department will put an end to this doomed relationship. It would be tragic to see nice people like Deloitte end up with bums like Peabody.

Don’t forget that Peabody are the company behind the Advanced Energy For Life campaign that pushes the idea that coal is good for poor people. They put out crazy propaganda like the idea that coal consumption leads to longer life expectancy:

IMAGE: Peabody Energy. Presented to make the case for coal to G20 nations.
IMAGE: Peabody Energy. Presented to make the case for coal to G20 nations.

Did you get that? According to Peabody people all died at aged 15 before they discovered coal in the 1600s…or something. You could of course graph the consumption of anything over the last 1,000 years and find exactly the same thing. The same holds for tennis racquets, heroin and cheese.

Peabody are the people who say things like “Energy poverty is the world’s number one human and environmental crisis”, but never actually contribute anything to energy poverty projects.

Submissions for the Wilpinjong expansion close on today. If you’re at all concerned about the lewd public behaviour of coal companies and economics consultants, make a submission and restore public decency!

*The figures used in this story are from Wednesday 9 March.

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Rod Campbell

Rod Campbell is Director of Research at The Australia Institute think tank.

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