Millionaires resuscitate collapsed mine to fuel Vales Point coal-fired power station
Coal barons Trevor St Baker and Brian Flannery have swooped on the mine supplying their Vales Point power station.
Coal barons Trevor St Baker and Brian Flannery have swooped to buy the NSW mine that supplies their Vales Point power station after its collapse into administration last year forced the duo to pay premium prices for coal to ensure it could deliver electricity to the grid.
Delta Electricity assumed control of the Chain Valley mine on April 1 after it was placed into receivership in October, with the rescue deal safeguarding 250 jobs and handing the power entrepreneurs control of the underground facility.
The NSW government signed off on the transfer of mining titles from the previous private owners Lake Coal, with Delta lodging bond obligations as part of its commitment to the eventual rehabilitation of the site.
“It’s a great deal for us and means we can keep working on remaining competitive and also looking ahead at the next phase of growth for Vales Point,” Mr St Baker told The Australian. Chain Valley supplies 1.2 million tonnes a year, about half of Vales Point’s annual coal needs. Its unexpected financial collapse placed a cloud over the cut-price fuel that feeds the power station near Lake Macquarie and supplies about 4 per cent of electricity for the national electricity grid.
The two executives bought the 1320 megawatt power station on Lake Macquarie on the state’s Central Coast for $1m from the NSW government less than three years ago.
The facility is now valued at $555m and enjoyed a bumper 2018 financial year, making a $113m net profit from $505m in revenue thanks to high electricity prices.
Contracts between Chain Valley and Delta were understood to have been at favourable market rates for the power plant owner.
Buying the Chain Valley mine, which is next to Vales Point, means Delta can avoid paying much higher export prices for its coal on the spot market.
“We were generally able to get what we looking for, but some of it was expensive coal,” Delta company secretary Steve Gurney said. “When you’re paying export prices for domestic use it can make it a little bit tough.”
The mine ran into financial stress after its previous owners faced a set of geological problems that disrupted production and hit cashflows, according to Delta.
“They were working their way through geological faults and weren’t producing. So there were costs out the door and no income,” Mr Gurney said.
The mine collapse last year came at a sensitive time for Mr St Baker and Mr Flannery, as they were negotiating a potential rejig of the ownership of Vales Point. Mr Flannery pulled the sale of his half-stake in Vales Point to external buyers in September, raising speculation a deal would be struck with Mr St Baker. The process of acquiring the mine over the past few months and a suite of potential projects ranging from Australia’s first high-efficiency, low-emissions coal plants in Victoria and NSW, a pumped-hydro facility in South Australia and an upgrade of Vales Point itself have delayed the talks.
“It’s gone quiet because we need to look at the South Australia opportunity and also the HELE plants,” Mr St Baker said.
The Vales Point upgrade is among a dozen projects the federal government is considering backing as part of its underwriting new-generation scheme, which seeks to bring more baseload generation into the national power market.
While the project will not extend the life of the power plant, it will produce more efficient electricity supply until the expiry of the facility in 2029.
“It means we would be able to produce the same amount of electricity but would use less coal,” Mr Gurney said.
Mr St Baker has previously revealed a plan to extend the life of the ageing plant for a further 20 years as part of a $1bn injection, although it is unclear whether Mr Flannery backs that vision for a longer life for the facility.
The 80-year-old energy industry veteran says the mooted investment will ensure the market’s most dominant fuel source remains an integral part of the country’s power mix and ensure power bills remain competitive as a surge of new wind and solar farms threaten to distort the grid and lead to a hike in prices.
Vales Point itself does not come with any clean-up liability.