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Linc Energy's divested Australian mine project runs into trouble

Thursday, July 23, 2015 - 14:48
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Oil and gas exploration company Linc Energy could have dodged a bullet by selling away an Australian coal-mine project and its royalty deed to India's Adani Mining.

OIL and gas exploration company Linc Energy could have dodged a bullet by selling away an Australian coal-mine project and its royalty deed to India's Adani Mining.

Adani was reported earlier this week to have suspended two major contractors on its A$10 billion (S$10.07 billion) Carmichael coal project in Queensland, casting doubt on the project's prospects.

The two contractors, project manager Parsons Brinckerhoff and Korea's Posco Engineering & Construction, were told last week to stop work, according to the Sydney Morning Herald newspaper on Wednesday.

The suspension came after Adani said in June that it was rejigging the budget for the mine as it faced delays in approvals from the Queensland state government, according to a Reuters report.

Linc sold the Carmichael project's underlying coal-mine asset for A$500 million in cash to Adani in August 2010, three years before Linc moved its listing from Australia to Singapore in late 2013.

Though Linc held a royalty for production from the coal mine as at July 2014, it said in a Singapore Exchange filing in August 2014 that it had inked an option to sell the royalty to Adani for A$155 million in cash to be paid in two instalments.

That royalty would have generated about A$133 million a year in revenue for Linc, assuming that Adani meets its predicted peak production target of 60 million tonnes per year.

However, the option was exercised later that year and Adani paid Linc the first instalment of A$90 million in October 2014, Linc said in a separate filing, adding that it expected to receive the remaining A$65 million on or before Oct 9, 2015.

Linc said in its third-quarter financial statement released in May that upon exercise of the option, it transferred all of its rights, interests, benefits and obligations of the Carmichael royalty deed to Adani Group.