BHP rules out selling Queensland coal despite royalty dispute

BHP Group has ruled out selling its Queensland metallurgical coal business but will boost investment if the Australian state's royalty regime is softened, CEO Brandon Craig said during the Aug. 18 results call for fiscal 2025-26 year results.

The diversified miner said in August 2025 that it was considering a "pause [to] lower margin areas of our operational footprint" in Queensland coal if low prices persist, while also looking into selling its Western Australia Nickel business.

In March, BHP Billiton Mitsubishi Alliance Pty Ltd. (BMA) warned workers that its coal mines in Queensland were uncompetitive under the royalty regime introduced in 2022.

However, a "recovery in seaborne demand and supply shocks" supported premium low vol FOB Australia prices to rebound in the second half of fiscal year 2025-26, according to BHP's Aug. 18 full-year results.

Platts, part of S&P Global Energy, assessed the premium hard coking coal price at $225.90/metric ton FOB Australia on Aug. 17, up from $191.40/mt a year prior.

BHP's fiscal year 2025-26 production rose 3% to 18.6 million mt and the average realized price was up 8% to $210.21/mt, according to its results.

However, "with stable raw coal inventory, normalized strip ratios and improved wet weather operational performance, BMA expects to deliver production of 43-45 million mt (100% basis) and to reduce unit costs to [under] $120/mt over the medium term," BHP's results stated.

Best years ahead

"Having spent a fair bit of time there as well, I know what that business is capable of and firmly believe its best years are in front of it," Craig, who was formerly BHP's vice president maintenance in Queensland, told an Aug. 18 results analyst call.

"We have a plan to improve performance and returns, and that plan doesn't include selling the business. Our ongoing focus on strengthening the supply chain and cost productivity is expected to lift production and reduce costs over the medium term, and we believe there is potential to invest further if fiscal conditions improve," according to Craig.

While BHP is not currently putting growth capital into BMA due to the royalty regime, it is investing capital in sustaining operations and is "prepared to invest capital to improve the productivity of that business," Craig said on a same-day media call.

Queensland's current royalty regime is such that when met coal moves into a higher price environment, BHP is paying "almost the equivalent of up to a 67% tax rate on the business," Craig said.

"That makes the long-term economics of actually investing major capital quite problematic. So we would definitely need to see a moderation of that back to a level that actually supports primary investment in the Bowen Basin, and I think that would be the case for us as well as our competitors in this particular region," Craig said.

BMA sits at the bottom of BHP's portfolio in terms of return on capital employed per asset -- lower than Antamina copper, Escondida copper, Western Australia Iron Ore, Pampa Norte copper and South Australia Copper, according to BHP's Aug. 18 presentation.

BHP CFO Vandita Pant told the Aug. 18 analyst call that BMA's met coal production has risen 10% over the last two years and can lift that another 13% over the medium term.

"Our thinking at the moment is absolutely about staying in BMA and pushing the BHP capability across the business to improve its cost performance, to lift its production performance, and to turn it into a real bankable addition to the portfolio," Craig told analysts.

This position is underpinned by BHP's long-term belief in met coal demand growth given India's ongoing industrialization, and BMA's "strong resource position" in Queensland's Bowen Basin, which Craig said is "one of the preeminent metallurgical coal basins of the world -- and there's only a small handful of them."

"The benefit we have is, because this is a genuinely tier 1 resource position, where we can work through that effectively over time. I do think what we're going to see is BMA recover its position as a critical pillar in the portfolio, and we have the team on the ground working on that currently," Craig said.

"When you have a look at steel industry growth in India, we do think that the market is going to continue to support met coal -- so the critical thing then becomes the productivity we can get out of the BMA basin," according to Craig.

BMA is currently in the third quartile on the cost curve, according to BHP's presentation.

BHP believes it can still get "multiple, multiple decades of life out of BMA, and we will continue to work with the Queensland government to try and address the royalty issue," Craig said.

"BMA is one of the largest suppliers of higher-quality steelmaking coal in the global seaborne market," BHP said, and is focusing on "improving supply chain resilience by rebuilding raw coal inventory levels, while normalizing strip ratios and further improving productivity."

"The position we took to the election is unchanged -- there will be no changes to Queensland's coal royalty scheme." Queensland Treasurer David Janetzki told Platts Aug. 18.