Andrew Gorringe, IEEFA: ‘Convenient’ for miners to blame royalties for ‘zombie’ mines
While Queensland’s big miners line up to blame royalties for a struggling industry, an analyst has called it a ‘convenient’ excuse to mothball mines once more.
A flurry of mine closures impacting up to 1000 jobs have been wielded as a weapon to push for the Queensland government to lower coal royalties – but many were previously turned into “zombie” mines before any changes to the scheme.
An analysis from Andrew Gorringe, who researches Australian coal on behalf of the Institute for Energy Economics and Financial Analysis (IEEFA), notes Saraji South, Cook Colliery, Burton Complex, Bluff Mine, Millennium/Mavis Downs and Wilkie Creek had all been shut down by their owners pre-2022, when the higher royalties were introduced.
“These mines share one thing in common. They are all previously mothballed mines that were shut on the grounds of being uneconomic,” Mr Gorringe said.
“So it’s no surprise that after coal prices have declined to historic levels that they are uneconomic again.
“There are various factors that play into the economics equation, but the owning companies have deemed them uneconomic – now for the second time.”
Most were restarted during the coal price peak – reaching above US$400 a tonne – but it has since halved, sitting around US$182, where it is expected to remain for the next decade.
The bigger canary in the coal mine is unit costs rising 50 per cent since 2018 for coking coal, partly due to aggressive expansion, Mr Gorringe said.
“They’ve got a cost problem – and royalties are one of those elements – but they’re certainly not the main element. They’ve also been focused on getting volume at any cost. “When the prices were good and they wanted to sell as much coal as they could, they expanded with little thought to costs,” he said.
Competing for port space, rail access, contracted materials in a boom led to everyone paying higher prices, and now as the price has fallen those costs are baked in.
“Now volumes have backed off, you’re trying to recover those capacity costs over a smaller pool of money,” Mr Gorringe said.
He said royalties are a smaller proportion of miners’ costs compared to 2018 when coal prices were similar, accounting for roughly 15 per cent of production costs, down from 20 per cent.
The loss of the Same Job, Same Pay court case will force the big miners like BHP relying on contractors to increase wages by as much as $30,000, the ACTU has claimed.
Combined with climate change reducing the number of days mines can safely operate, coal being more expensive to mine as companies dig deeper, miners increasingly made to account for emissions, and the price of coal, less profitable mines will not be viable.
“Miners that hope to restart or sell-on zombie mines will find it more convenient to blame high government royalties than to declare them uneconomic,” Mr Gorringe wrote.
