UPDATE: Australia Carbon Tax To Cut A$8 Billion Value From Coal Mines -WoodMac

Australia's planned carbon tax will reduce the value of Australia's coal industry by around A$8 billion through increased fuel costs and the pricing of escaped mine gases, energy consultant Wood Mackenzie said Monday.

But the impact of the tax on industry costs would be "quite small", though companies are still likely to rethink investments as a result of the changes, the group said.

With 327.5 million tons of overseas sales this year, Australia is the world's biggest coal exporter by volume, accounting for one in five tons in the seaborne market for the thermal coal used in power stations, as well as nearly three out of five tons in the market for coking coal used in steelmaking.

These exports account for greenhouse emissions worldwide on a par with Germany's domestic carbon emissions. However, the carbon plan announced earlier this month will only affect domestic industry, meaning that coal mines will mostly be hit by a decrease in rebates they receive for their diesel fuel, and pricing of the methane gas that escapes from their coal workings.

Wood Mackenzie analyst Ben Willacy said the initial A$23 per metric ton carbon permit price would result in a carbon price for miners of A$3 per ton, rising to A$6.70/ton if market-based permits hit A$60/ton.

That compares to average production costs of A$79/ton across the industry over the past year, while the local Newcastle thermal coal benchmark is currently at US$121.90/ton and recent coking coal contracts have settled at US$315/ton.

"At A$23 per ton, the costs will be unwelcome and could be seen as significant, but it falls within the same sort of levels as changes in exchange rates. At that level we don't expect a large reduction in investment in the coal sector," he said. The Australian dollar has strengthened by 20% against the U.S. dollar over the past year.

The decrease in companies' net present value--the current value of all their future earnings--would range from 2% to 15%, Willacy said, with an average of 4% across the industry equivalent to A$8 billion of overall net present value.

However, two-thirds of the tax burden would fall on the 18% of mines considered most "gassy". The loss of the diesel rebate would account for only 12% of the overall loss in net present value, with 'fugitive emissions' making up the balance.

Gassy underground mines operating on tight profit margins--such as Gujarat NRE Coking Coal Ltd. (GNM.AU) and Caledon Resources PLC (CDN.LN), currently being taken over by Guangdong Rising Assets Management--would be hardest hit.

Those focused on less-gassy open-cut coking coal--such as BHP Billiton Ltd. (BHP), Aston Resources Ltd. (AZT.AU), Macarthur Coal Ltd. (MCC.AU)--would be less affected.

-By David Fickling, Dow Jones Newswires; [phone]; [e-mail]