BHP warns that Queensland royalties may impact met coal investments

Melbourne-based miner BHP said July 19 it was reviewing an increase in coal royalties impacting its operations in Queensland, while metallurgical coal output may remain steady for the coming year following a decline reported in the financial year just finished due to wet weather impacts.

Queensland's role as a global hub for seaborne high quality coking coals is in focus, after coking coal and thermal coal prices hit record-highs this year on support from energy demand substitution, tight logistics and limited global mining expansions as projects in Alberta, Canada and Cumbria, the UK, were delayed in planning.

Even as smaller miners and traders invest into new and existing projects in the Australian state, a change in coal royalties may be harder to absorb after sales prices more than halved from the record highs reached in March.

Higher royalties in the state may threaten met coal-related investments at its joint venture BHP Mitsubishi Alliance (BMA), BHP said in a report. The company reported realized hard coking coal prices hit $366.82/mt, averaging between July 2021-June 2022, more than tripling from $112.72/mt in the previous financial year.

"BHP is assessing the impacts on BMA economic reserves and mine lives as a result of the increase in coal royalties by the Queensland Government," it said.

"The near tripling of top end royalties has worsened what was already one of the world's highest coal royalty regimes, threatening investment and jobs in the state."

At spot Platts PLV coking coal prices of $243.50/mt FOB Australia on July 13, the effective pre-tax royalty rate has increased by around 7 points to 19%, BHP said.

"This further cost pressure will discourage investment, operational growth, job creation and local business spending across the state. The new tax damages Queensland's reputation as a stable place to invest, and will make it harder for the state to compete against other global jurisdictions in attracting major new investments that would deliver longer term value to communities and the state economy."

BHP plans to produce 58 million–64 million mt in its latest financial year started July 2022 on a 100% basis at its Queensland joint venture met coal mines owned with Mitsubishi Corp. The guidance is roughly flat to 10% higher from the previous financial year, when output weakened.

"Significant wet weather impacts across most BMA operations and labour constraints, including COVID-19 related absenteeism which impacted stripping and mine productivity, more than offset record production at the Broadmeadow mine," it said.

BHP said the Goonyella coal truck fleet expected to be fully autonomous by the end of Q4 2022, following automation of Goonyella's pre-strip truck fleet, completed in March 2022, and Daunia's truck fleet in November 2021.

BHP said it plans a longwall move at the underground Broadmeadow mine for Q3, which feeds into the Goonyella Riverside complex for processing.

The divestment of BHP's 80% interest in the BHP Mitsui Coal (BMC) met coal JV to Stanmore Resources was completed on May 3, 2022, and only output to April 30 is included in results.

BHP reported a 9% decline in met coal production to 58.3 million mt in its July 2021- June 2022 financial year on a 100% operator basis, excluding BMC production. Earlier plans projected an expansion to return shipment volumes to meet recovering steel demand. This came after a maintenance program concluded at several coal wash plants. The company had last guided 68 million-72 million mt in Queensland coal production for the full-year, with 9-10 million at BMC anticipated.

In Q2 2022, BHP said higher quarter on quarter volumes of 16.4 million mt (100% basis) were driven by improved truck productivity, partially offset by heavy rainfall through the period, following higher than usual wet weather disruption earlier in the reporting period. BHP produced 12% less met coal in Q2 on a year earlier, which may have contributed to limiting spot market availability in the market.

A reduction in hard coking coal sales, and increase in thermal coal sales at BMA was seen over the year, with total sales of 58.1 million mt.

BHP said unit costs for BMA operations "are expected to be marginally above full year revised guidance for Queensland Coal due to the impact of the divestment of BMC, and higher diesel and electricity prices at guidance exchange rates," noting weaker Australian dollar rates than used for guidance.