Hancock Prospecting’s $800m Canadian coal play in trouble after environmental rejection

Hancock Prospecting’s $800m takeover of a Canadian coking coal developer may have backfired, with a flagship project blocked.

Gina Rinehart had regarded the Riversdale takeover as the culmination of Hancock’s search for a quality coking coal asset.

Gina Rinehart’s $800m takeover of Canadian coking coal developer Riversdale Resources appears to have blown up on the mining magnate after regulators in Canada knocked back environmental approval of the company’s flagship project.

Mrs Rinehart’s Hancock Prospecting closed its $2.70 a share takeover of Riversdale in 2019, hoping to cash in on rising demand from high quality coking coal found in the Canadian province of Alberta.

But that investment is now in deep trouble after a review panel, run jointly by federal and Alberta provincial government regulators, ruled development of Riversdale’s Grassy Mountain coal project was “not in the public interest”, blocking development of the mine.

In a statement on its website, Riversdale said it would be “consulting with legal counsel” to review the report, as Hancock Prospecting and its Canadian subsidiaries consider their legal options to challenge the decision.

Regulators have been considering the proposal for the mine since 2016, with Riversdale and then Hancock seeking approval to produce 4.5 million tonnes of steelmaking coal annually over the mine’s 23-year lifespan.

But the review panel has now knocked back approval submissions made by Riversdale subsidiary Benga, saying it did not believe the economic benefits of Grassy Mountain would outweigh its environmental impact.

“Based on our assessment, we conclude that the project is likely to result in significant adverse environmental effects on surface water quality, westslope cutthroat trout and their habitat, whitebark pine, rough fescue grasslands, and vegetation species and community biodiversity,” the panel’s decision said.

“We find that the project would result in low to moderate positive economic impacts on the regional economy, but that Benga did not consider some risks that could reduce the magnitude of these positive impacts.”

The panel also cited concerns about potential damage to heritage and cultural sites of First Nations peoples who had a relationship with the region, even though most traditional owner groups affected by the mine’s development had signed agreements with Riversdale and did not object to the mine’s construction.

Riversdale, which was founded by former Riversdale Mining executives Michael O’Keeffe and Steve Mallyon, was acquired by Hancock after a running battle for control of the company, with Mrs Rinehart’s flagship miner forced to sweeten its initial $2.50 a share offer for the coal developer to get major shareholder RCF Capital to sell into the deal.

The pair, along with Riversdale chief financial officer Anthony Martin, controlled a collective 16.5 per cent stake in the unlisted company, worth a combined $133m at the $2.70 final offer from Hancock.

Riversdale Mining, which had a big coking and thermal coal project in Mozambique, was bought out by Rio Tinto for $US3.7bn ($4.9bn) in 2011, and the transaction remains mired in controversy.

Only 18 months after the transaction closed Rio took a $US3bn impairment against the value of the assets, with the writedown directly leading to the departure of chief executive Tom Albanese and chief financial officer Guy Elliot.

Rio and key executives from the period still face court actions by regulators in the US and Australia over allegations they misled the market over the changes in Rio’s valuation of the assets.

At the time Hancock acquired Riversdale Resources and its Canadian project, Mrs Rinehart said the takeover was the culmination of her company’s long search for a quality coking coal asset to add to its iron ore interests.

The news of the knock-back by Canadian regulators also hit the share price of ASX-listed coal plays with projects in the vicinity of Grassy Mountain.

Atrum Coal shares closed down 1.9c, or 40.4 per cent to 2.8c on Tuesday, with Montem Resources down 52.8 per cent, or 3.7c, at 3.3c after both noted the panel’s decision.

Both companies said they were considering the implications of the ruling.