Nathan Tinkler's Dartbrook coal play

I hope that you had a happy and peaceful Christmas.

The proposed sale of the mothballed Dartbrook coal mine Anglo American plc to the Nathan Tinkler controlled Australia Pacific Coal (Stock Exchange ticker AQC) for a price of up to $A50 million (here, here, here) has been greeted with a degree of incredulity and indeed anger in some quarters.

Under the terms of the deal, AQC will acquire:

• Anglo American's 83.33% interest in the Dartbrook JV
• a 100% interest in Anglo Coal (Dartbrook Management) Pty Ltd, manager of the Dartbrook JV 
• a 83.33% interest in Dartbrook Coal (Sales) Pty Ltd, marketing agent of the Dartbrook JV (

The consideration for the acquisition includes:

• a A$25 million cash payment
• a royalty over AQC’s share of coal from the Dartbrook joint venture at a rate of A$3.00 per tonne of coal sold or otherwise disposed of and A$0.25 per tonne of any third party coal processed through the Dartbrook infrastructure, but capped at A$25 million (subject to escalation in accordance with CPI). 
• in addition, the Company will be replacing approximately A$7.7 million in financial assurances in respect of the Dartbrook mining tenements.

You can see what Mr Tinkler is trying to achieve. Anglo American is in a degree of trouble world wide, and is seeking to slash 85,000 jobs. Dartbrook is on a care and maintenance basis, is quite surplus to requirements, while coal prices are very low. It wants out. From Mr Tinkler's perspective, the mining and transport infrastructure is there, while the coal is high quality thermal coal that can be extracted more cheaply if the present underground mine is replaced by an open cut. His aim is a low cost coal mine that will be profitable once coal prices recover somewhat, highly profitable is if coal prices increase significantly, creating either an asset for sale or a cash flow that can be used to support other projects. He is, in fact, trying to replicate the process that gave him his original fortune.

I am not privy to the numbers, but they could well stack up in commercial terms. However, the AQC statement to the Exchange seems remarkably sanguine on two points: the first the likelihood of community support, the second the expectation that environmental approvals will be relatively easy to obtain given nearby mines. Every Hunter Valley coal proposal now meets fierce environmental opposition, while too many people are owed money from Mr Tinkler's previous ventures to provide a basis of trust. Even the unions which normally support mining ventures because of the jobs provided are extremely cautious because of Mr Tinkler's involvement. .