Queensland’s coal royalty increase to hit BHP spending

The Queensland government’s cash grab will have a bigger impact on BHP’s investment decisions than the long-running fight over taxes on copper miners in Chile, Mike Henry says.

Mining giants BHP and Anglo American have slammed Queensland’s coal royalty hike saying it will stifle the state’s ability to attract new investment into its critical minerals sector.

BHP boss Mike Henry said last year’s cash grab would have a bigger impact on the company’s investment decisions than the long-running fight over taxes on copper miners in Chile.

Anglo American chief executive Duncan Wanblad told The Australian the royalty hikes would have an impact on Anglo’s future investment decisions.

Mr Henry took to the stage at the World Mining Congress in Brisbane – speaking after Queensland Premier Annastacia Palaszczuk – to reiterate BHP’s threats it would no longer invest growth capital in the state after last year’s royalty changes made Queensland “ the highest taxing regime for mining in the world”.

Ms Palaszczuk used the conference to announce the state’s critical minerals strategy, which includes cancelling fees for exploration tenements for the next five years, and a $100m fund to support new investments in battery minerals projects.

The royalty changes apply only to coal, and delivered $15bn for the Queensland government in the June state budget, about $10bn more than forecast when the changes were introduced a year ago.

Queensland imposed a royalty rate of 20 per cent for prices above $175 a tonne; 30 per cent for prices above $225 a tonne; and 40 per cent for prices above $300 a tonne.

After a heated battle with the copper sector over the last five years, in May legislators in Chile finally passed a new mining tax bill that will see copper and lithium producers face significantly higher tax rates.

Under the changes the top tax rate will touch 47 per cent for companies that produce over 80,000 tonnes of copper a year. The changes also include a 1 per cent tax on copper sales from companies that sell more than 50,000 tonnes of copper, as well as an additional 8 to 26 per cent tax linked to the miner’s operating margin.

While BHP has previously opposed Chile’s new mining taxes, Mr Henry said lengthy negotiations between the government and the country’s mining industry were “respectful, with a focus on understanding and collaboration”.

“Notwithstanding a government for the strong left, they engaged industry, and sought to understand and to work towards an outcome that struck a balance between public needs and what was required to keep industry competitive,” he said.

“Here in Queensland, the approach to raising royalties could not have been more different. No industry engagement, no effort to understand, and no interest in understanding,” he said.

“In this case, both the outcome and the process have meant for BHP that we have opportunities to invest for better returns and lower risk elsewhere around the world, as well as here in Australian states like Western Australia and South Australia. And we will not be investing any further growth dollars in Queensland under the current conditions.”

Mr Henry’s comments were backed by Anglo American chief executive Duncan Wanblad, who also spoke at the conference on Tuesday.

Anglo also has a big coking coal business in Queensland. While the company has not joined BHP in threatening to quit investing in the state, speaking on the sidelines of the Congress, Mr Wanblad told the Australian the royalty hikes would certainly have an impact on Anglo’s future investment decisions.

“It is not just a principle issue – like this is the highest tax jurisdiction in the world, and therefore we won’t be investing anymore. It’s just actually that we will invest where we can get the best returns for the shareholders,” he said,

“That’s the ultimate stop in terms of investments, whether the returns can be won at a reasonable risk profile or not.”

Mr Henry told the congress audience that Australia’s policy settings needed to remain supportive of further investment in mining if the country is to maintain its position as the jurisdiction of choice to fill the growing global need for minerals required for energy transition.

“We need a massive wave of capital investment – perhaps an additional $US100 billion per year in capital investment in the resources sector – if the world is to get on track to meet the Paris aligned 1.5 degree scenario,” he said.

“Without governments in resource rich nations establishing good governance and without governments ensuring that investment settings are attractive, the meeting of this better future will be impeded by a lack of willing capital due to perceived risks, or by lack of sufficient pace in deploying capital due to slow permitting processes.”

But Mr Henry said that Queensland’s coal royalty hikes would act as a barrier for BHP considering moving beyond coal in the state, despite the fact the windfall royalty rates affect only that commodity, and Queensland has a rich endowment of copper and other critical minerals.

“I can’t really speak for the whole industry, but from a BHP perspective it would impact how we see the risk of investing in Queensland,” he said.

“The returns point is specific to coal, but the risk is in the way that the government chooses to engage or not engage industry as it seeks to meet its own challenges.”

Originally published as Queensland’s coal royalty increase to hit BHP spending