Coal to remain for decades: BHP defends new Queensland coal mine

BHP has defended a plan to build a new Queensland coal mine, arguing a hyped move to green steel would take decades to replace coal as a raw material for steel making.

BHP is weighing up future investment in coal mines after the Queensland government hiked royalties.

Resources giant BHP has defended a plan to build a new Queensland coal mine that could operate for 90 years, arguing a hyped move to green steel would take decades to replace the fossil fuel as a critical raw material for steel making.

The Blackwater South project could produce 10 million tonnes of metallurgical coal for steelmaking each year but shareholders have questioned how BHP squares the giant scheme with its pledge to reduce its carbon emissions by 2030.

BHP chief executive Mike Henry said a move to green steel would take place over decades while stressing the 90-year mine life was based on resources and reserves rather than a broader statement over the future of coal.

“It’s not taking a view now about how we would see that market evolving and when the use of coal for steelmaking may fall away,” Mr Henry told a shareholder forum. “We’ve said that we do believe that in due course, the world will shift to green steel. But sometime yet, in the next few decades, we believe that coal will still be needed for the purposes of steelmaking.”

BHP said in June it would not sell its Mt Arthur thermal coal mine in NSW, but put the facility’s 2000-strong workforce on notice their jobs will not last forever, outlining plans to wind down operations by 2030, 15 years ahead of previous plans.

The company’s coal unit recorded massive profits for the 2022 financial year, with both thermal and metallurgical coal soaring in value this year while gas prices have also jumped due to Russia’s invasion of Ukraine.

BHP chief executive Mike Henry.

One shareholder quizzed BHP whether its decision to merge its petroleum unit with Woodside Energy and trim its coal exposure left it exposed to the price surge for the twin commodities.

“Let me start just by clarifying that the divestment of the petroleum business and some of our coal assets wasn’t for the purposes of decarbonisation. This was all about shareholder value and risk,” Mr Henry said.

“We’ve been very clear that we’re trying to construct a portfolio that is aligned to some of the trends that we see playing out in the world around us: electrification and decarbonisation. We want a portfolio of commodities that is positively leveraged to those trends with more upside than the downside.

“We saw the assets we invested in as being attractive assets in the near to medium term. Over the longer term we think there’s more questions about where those assets trended.”

Mr Henry said BHP saw better opportunities in “future facing” materials including copper, nickel and potash.

“Potash as a commodity in technical terms gives us more diversification in cash flows than petroleum would have given us historically. So there’ll be a net benefit to the company in terms of that diversification of markets and commodity prices going forward.”

While BHP stated in August the Blackwater expansion was on ice in protest against the Queensland government’s new royalty regime, the state’s treasurer Cameron Dick said Queensland’s Co-ordinator General had confirmed with the miner they are proceeding with regulatory approvals “at pace”.

Still, BHP repeated its warning on Thursday that Queensland coal investments were now under threat.

“The Queensland royalty will have an impact on our investment process,” BHP chief financial officer David Lamont said.

“Everything needs to compete within our capital allocation framework. Now what the Queensland government has done with the royalty is capped the return at the high end of any commodity cycle. And we need to be able to invest through cycles. That means that we need to at the top be able to get a return that actually compensates us also for when we’re at the bottom of the cycle.”

Mr Dick increased coal mining royalties in his June budget following a decade-long freeze and after repeatedly promising no new or increased taxes during the 2020 state election campaign.

Originally published as Coal to remain for decades: BHP defends new Queensland coal mine