Eagle Downs is a 50:50 joint venture between Vale and Aquila and the project is located immediately downdip from BHP Billiton Mitsubishi Alliance’s Peak Downs mine – which typically sets the premium benchmarks for hard coking coal.

The longwall project was on track to start production of 4.6 million tonnes per annum of raw coal production in 2013, but in January Vale unexpectedly pulled out of arrangements to secure port capacity at Abbot Point.

In mid-June, Vale global coal managing director Decio Amaral said Vale’s subsidiary Bowen Central Coal preferred to seek future capacity at the Dalrymple Bay Coal Terminal.

As a result, the relationship between Vale and Aquila has grown increasingly strained, and Vale is now believed to be favouring a deal with Ensham, a private coal company which produces around 7Mtpa of thermal coal.

Ensham was one of the few coal companies which did not sign on to a subscription agreement with Queensland Coal Industry Rail Group’s proposed but now disbanded $A5.1 billion bid for Queensland Rail National’s rail network.

Vale signed on to a subscription agreement while both Ensham and Aquila were supporting parties of the QCIRG bid – meaning they had the opportunity to provide equity at a later stage.

While Ensham will not discuss its port and rail capacity, its decision to be a supporting party could indicate there was not a present need to use the QRN track system, but there was a possible need to use it in the future.

An Ensham spokesman told ILN that details of its port and rail capacity are commercial in confidence.

On whether Vale is seeking to buy port and rail capacity from Ensham’s namesake mine in Queensland, Vale would also not comment.

“Any information relating to the Eagle Downs joint venture that is not in the public domain is subject to commercial confidentiality restrictions and Bowen Central Coal is not at liberty to discuss such matters,” a Vale spokeswoman said.

Eagle Downs dispute

Aquila is seeking damages from Vale for the expected income from longwall mining at Eagle Downs from 2013 as the Brazilian giant would not agree to the planned port capacity at Abbot Point early this year.

While Vale chose not to shed light on possible talks with Ensham, it did comment on issues relating to Eagle Downs.

“I can say based on an analysis of information available to us at the time, it was our view that over the long term the Dalrymple Bay Coal Terminal and its planned expansion presented the best option for rail-port capacity from Eagle Downs should the project be feasible and the participants approve its development,” the Vale spokeswoman said.

“Whilst the situation is still fluid and changeable, due to possible delays to the DBCT expansion that have since been announced, we are working closely with Aquila to find a solution if it turns out to be necessary.”

Aquila chief executive Tony Poli told ILN the Eagle Downs project was certainly not feasible without rail or port agreements in place.

He said additional capacity at DBCT was going to be available in 2015, while the Abbot Point capacity offered to Eagle Downs in January was available from 2012.

The situation has become worse, with Poli expecting additional DBCT capacity to become available around 2017.

The project also has the scope for a second longwall operation to lift total production to 8Mtpa.

Total resources were 948Mt as of last month, including 577Mt in the measured category.

Belvedere battle

The second dispute is over the price Vale should offer Aquila for its 24.5% stake of the Belvedere longwall project in the state.

Vale managed to secure private resources company AMCI’s 24.5% stake of the project in June for $US92 million.

That deal could be considered undervalued, especially when considering that Aston Resources paid $A480 million cash for the less-advanced Maules Creek project in the Gunnedah Basin of New South Wales.

A consortium comprising Korea Electric Power Corporation, steelmaker POSCO and Cockatoo Coal also inked an agreement to pay Anglo American Metallurgical Coal $580 million in cash for five undeveloped Australian coal leases.

Belvedere is a hard coking coal project located in the southern Bowen Basin, and already holds 3.87 billion tonnes of resources, including 1.53Bt indicated and 2.34Bt inferred.

The prefeasibility study in March confirmed the viability of a 3.5Mtpa coking coal operation, which will increase to 7Mtpa with a second longwall in 2020.

Construction could start up in 2014, with first coal mined in 2016 and the first longwall installed in 2017.

While AMCI has a policy of not talking to the media, at least some of the company’s stakes in Australian coal assets are subject to a separate JV with America’s First Reserve Corporation.

The Vale spokeswoman ruled out any other possible consideration other than the $92 million paid to AMCI for its 24.5% stake in the project.

“There was no other payment or consideration for the project interest (including to FRC) and this AMCI acquisition was not part of any other transaction or arrangement between Vale and AMCI (or FRC for that matter),” she said in a statement.

“Media or broker suggestions that there was loan forgiveness, that Vale acquired debt or that there were other arrangements that were not disclosed as part of the transaction are entirely unfounded and not true.

“There were also suggestions that AMCI was a distressed seller which we believe to be incorrect.

“AMCI was an original joint venture participant in the Belvedere project and was well aware of the challenges associated with its development.

“The transaction with AMCI was arms length, between two companies with equal and intimate knowledge of the project and we believe the transaction with AMCI represents a fair value for the 24.5% interest the company had in the project.”

On why AMCI sold its stake for $92 million, Vale provided a few possible reasons.

“Belvedere is a highly complex mine site and will require significant investment from Vale to develop, which will include dealing with its unique and complex coal geology,” the spokeswoman said.

“Belvedere, if developed, will be the deepest underground coal mine in Queensland.

“It’s a large-scale mine and a challenging project that Vale – the second-largest mining company in the world – has the skills for and is eager to take on.”

Vale owns 75% of the project and the fair-market-value determination process for Aquila’s stake is ongoing, in accordance with the conditions of the Belvedere JV agreement.

Both companies have an equal 50% stake of the Isaac Plains open cut coal mine, which is approved to ramp up to 4Mt of raw coal next year.