Even as Solid Energy winds down its operations, Bathurst Resources is claiming millions of dollars in potential benefits from its proposed coal mine on the West Coast.
But after extracting the dividends which go to overseas investors, employment displacement, opportunity costs and loss of flora and fauna, the benefits may be considerably overstated, Royal Forest & Bird Protection Society lawyer Peter Anderson says.
This week, Forest & Bird’s appeal against resource consents granted to listed coal miner Bathurst was being heard in the Environment Court in Greymouth as part of a six-week hearing.
Bathurst chairman Craig Munro expressed his frustration a few days ago at the company’s annual meeting when he complained the resource consent regime was unproductive for his company.
His frustration may have boiled over this week when he learned that another challenge has emerged.
Supreme Court appeal
The West Coast Environment Network and Forest & Bird have been granted permission to appeal to the Supreme Court against a High Court judgment which disallowed climate change evidence regarding environmental effects from mined coal in resource consenting applications.
A date for the hearing is yet to be set.
The delay may not be entirely negative for Bathurst, however. If the expectations of some economists prove to be correct, the price of coal has further to fall. Delaying a start to mining may save the company from its own rosy projections.
Bathurst Coal’s economic expert, Geoff Butcher, told the Environment Court of a “net present value” of $467 million over the six year operation of the proposed West Coast mine.
Jobs created at the Escarpment Mine project at Denniston Plateau would equate to about 10% of employment for Buller District and 3% of the West Coast as a whole.
Mr Butcher estimates economic output of:
- $1451 million ($302 million per year).
- Value added or GDP of $806 million ($168 million per year).
- Gross wages and salaries of $127 million ($26 million per year).
- The equivalent of 1082 full-time equivalent job years (on average 225 jobs per year).
Mr Butcher’s cost benefit analysis envisages operating revenue over the mine’s lifetime of $1450 million, capital costs of $65 million and operating costs of $754 million, resulting in net cashflow of $631 million over six years.
This converts to the net present value of $467 million using Treasury’s public sector discount rate of 8%.
It is broken down into:
- $9 million payments to DOC for pest control.
- $11 million royalties paid to government.
- $125 million paid in other taxes to government.
- $321 million in dividends paid to shareholders, of which 8% ($26 million) would go to New Zealand owners.
Of the $467 million of net present value, 63% would be paid as dividends to overseas shareholders. Payments to New Zealand shareholders and taxes to government account for 32% – all contingent on the price of coal.
But Forest & Bird economic expert Peter Clough says there are considerable doubts the $467 million will be realised and the royalties and pest control are not a net benefit to New Zealand.
When it comes to the benefit from jobs – $26 million in gross wages and salaries or 225 jobs – he says this does not distinguish between new business creation and business redistribution.
One of Mr Clough’s strongest doubts is about the price of coal.
Bathurst’s Mr Butcher bases his analysis on $US240/tonne.
He cites recent international prices for coking coal, showing volatility since 2008 – the price of $US240/tonne is just below the top of a secondary peak during the period.
During the past three years it appears that the high-volume spot price has been below $192/tonne for more than half the time and below $165/tonne for just under half the time.
“On recent experience, either of these price variants that could drive profits to zero are a distinct possibility,” Mr Clough says.
Mr Butcher’s sensitivity analysis found that a 31% reduction in price would reduce the net present value by $447 million to $20 million, when the net return to shareholders would be zero, and the mine just covers its capital and operating costs.
The net present value would then be represented by the payments to DoC and royalties to government. A similar result would occur with a 20% reduction in price and 20% increase in costs
Mr Clough says there are signs that the coking coal market is over-supplied and prices are due to fall, possibly to around $US200/tonne which is $US8 more than the break-even price identified in Mr Butcher’s 20% price fall and 20% cost rise.
At that price, even if costs stayed the same, the return to New Zealand would fall to around $15 million in shareholder dividends and $76 million in tax.
Factors contributing to over-supply and downward pressure on prices include recovery in export production from Australia, which was affected by major flooding to 2011, and new coking coal projects under development in regions as varied as Mongolia, Indonesia, Mozambique, Russia and Canada, Mr Clough says.
He also makes various estimates of the potential loss of tourism income.
However, the environmental losses are more nebulous.
Mr Clough highlights:
- Lasting effects on ground cover and vegetation.
- Permanent change in the landform structure of the Denniston Plateau, including loss of 20ha of sandstone pavement and associated habitats that cannot be artificially created.
- Destruction of one of only three known sites in New Zealand of a Sticherus fern species.
- Permanent alteration of one of the best examples of vegetation types in the southern Denniston Plateau that is currently in excellent condition.
- Damage to some tall forest communities that will take 500 years to return to full development.
“There is no simple economic answer to show what these things are worth. But all decisions on using or retaining resources place an implicit value on conservation for the future" Mr Clough says.
“The fundamental issue ... is not whether it would be a good investment for the company, which is a private concern to be decided by the company.
“The high level national benefit question is whether (it) is consistent with sustainable management of physical and environmental resources, which in economic terms can be reformed as the question of whether community well being and resource use efficiency would be best served by the Denniston Plateau being transformed by the mine or by being retained in its current unmodified state.
“The economic benefits of the mine are relatively apparent, although as I have argued rather smaller than they are claimed to be. The economic benefits of retaining the plateau in its current state are less obvious, because they depend on diffuse services and uses which are generally not exchanged in markets.
“There are natural features of the Denniston Plateau that contribute to national goals and well being that are at risk of irreversible change from the project. By virtue of scarcity and distinctiveness they warrant a high economic value attached to their protection,” Mr Clough says.
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