Vale SA's Australian coal unit, Bowen Central Coal, has denied it is in default over infrastructure agreements for the A$1 billion Eagle Downs coking coal joint venture project with partner Aquila Resources Ltd.
The denial follows on from Aquila's statement on Tuesday that it had issued a default notice for the JV in a dispute over infrastructure arrangements. Aquila prefers to ship from Abbot Point from 2012-13 using the 69km rail line due to be completed by 2012, however Vale preference is to use the Dalrymple port, suggesting that lower costs would offset any delay. Using Dalrymple means the project will not ship any coal until 2015.
A spokesman for Vale put the dispute down to a difference of opinion: "Vale does not agree that we are in default. We and Aquila have different views about the best logistics solution for the JV. Always acting in the best interest of the JV, Vale tried to demonstrate to Aquila our views and conclusions but unfortunately Aquila refused to accept our point of view," a Vale spokesman said.
In a note to investors Patersons Securities analyst Alex Passmore said that the dispute was “clearly not positive for Aquila's relationship with Vale." The matter is now likely to go to arbitration. Aquila has set a deadline of Friday for the issue to be resolved so that contracts for the infrastructure can be signed by the end of March.
The two companies are also partners, along with AMCI Pty Ltd, in the A$2 billion Belvedere coal project, where Aquila holds a 24.5% stake and Vale 51% and Passmore believes that both companies are jockeying for position ahead of the release of the Belvedere feasibility study that is due shortly. Vale has an option to buy out its partners in Belvedere at “fair market value in the future” according to Aquila. If Vale is found to be in default then Aquila may try to buy out its share in the Eagle Downs project. It is likely to be backed in this regard by Chinese steel maker, Baosteel, who own a 15% stake in Aquila.
Meanwhile Queensland Rail has said that the billion-dollar rail link from the Bowen Coal basin to Abbot Point will not be jeopardised if the Aquila/Vale JV does ship through Dalrymple. "We have a number of customers for the GAP project, including the Northern Missing Link, and at this stage the project remains committed to proceeding, with construction expected to start in early April," spokesman Mike Carter said.
"We have a range of customers, our project is on schedule, it's aligned to a 50-million-tonne per annum project and we'll have that ready to go in early 2012."
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