BHP confirms review of Queensland coal life underway
Mining giant BHP is quietly planning for the possible early closure of the company’s flagship coking coal mines in Queensland as a result of royalty rate hikes.
Mining giant BHP is quietly planning for the possible early closure of the company’s flagship coking coal mines in Queensland, its financial accounts show, with the company pointing to the state’s windfall royalty hike for the decision.
The royalty hikes were a shock feature of Queensland’s July state budget, and are now expected to deliver $3bn to the state’s coffers in the current financial year, up from initial estimates of $765m.
BHP chief executive Mike Henry has already declared the company will not make any new investments in Queensland while the windfall royalty rates remain in place.
But the Australian can reveal that BHP is also planning for the potential early closure of its existing BMA mines in Queensland, setting aside $750m in its annual financial accounts for early closure and rehabilitation costs.
And, while BHP said a review of the longevity of its mines was also required in light of China’s shadow ban on Australian coal and moves to try to decarbonise the steel industry over the next few decades, the company also pointed the finger squarely at Queensland’s royalty rates.
In addition to global factors, the company’s accounts say the $US750m ($1.1bn) increase in its BMA closure provisions “reflects a preliminary assessment of the potential impacts on BMA mine lives resulting from the significant increase in coal royalties applicable in Queensland from July 1, 2022”.
BHP’s BMA group has a decades worth of coal left in its deposits and its annual report says its existing mine leases have expiry dates ranging out as far as 2043.
While no closure decisions are likely in the immediate future, BMA asset president Mauro Neves confirmed on Thursday that the review into BMA’s closure dates was ongoing, saying the royalty rate hikes “are starting to bite”.
“The outlook for future investment in Queensland under this policy is increasingly bleak,” he said.
“We are unable to make significant new investments in Queensland and some mines may close earlier than planned because of the government’s increase in royalty tax rates.”
Mr Neves comments come a day after Australia’s biggest coal producer, Glencore, confirmed it has pulled plans to build a new $2bn thermal coal mine near Emerald in Queensland’s Bowen Basin.
While Glencore also cited global factors for the decision, like BHP the company said Queensland’s royalty rates were a significant factor in its decision.
“Abrupt decisions like the Queensland super royalty hike have damaged investor confidence, increased uncertainty and raised a red flag with key trading partners. Genuine and timely consultation with companies on the detail of policy reforms is crucial to avoid continued uncertainty,” a Glencore spokesman said this week.
Delivering the Queensland government’s mid-year budget update this week, state Treasurer Cameron Dick defended the windfall royalty rates, saying the were “delivering a fair share for Queenslanders”.
“It’s disappointing that despite this the government continues to refuse to constructively engage with industry to discuss how this investment exodus can be reversed.
The government should reconsider and work with industry to keep Queensland competitive,” Mr Neves said.
Elsewhere in its annual financial filings BHP told shareholders it could not give medium term cost and production guidance at BMA due to the review.
“We remain focused on cost reduction and productivity initiatives, however given the ongoing uncertainty regarding restrictions on coal imports into China and the announcement of the change to the Queensland royalty regime, we are unable to provide medium-term volume and unit cost guidance,” the company said.
But BHP also said it was “preserving options” for future developments in Queensland, and in August lodged federal environmental applications for a new mine near its Blackwater operations which could allow coal production to continue for another 90 years.
The mining sector, led by the Queensland Resources Council and the Minerals Council of Australia, has fought a vocal rearguard action over the royalty rate hikes, and QRC chief executive Ian Macfarlane said on Thursday Glencore’s decision was “a sign of things to come”.
“The Queensland government does not appear to appreciate the impact of its decision to lift coal royalty taxes to the highest rates in the world,” he said.
“Short-term political decisions like this make it harder for companies to invest here and send a signal to shift their focus to other destinations that offer better returns to investors.”
But environmental groups welcomed Glencore’s decision on Thursday, with Australasian Centre for Corporate Responsibility (ACCR) project director Naomi Hogan suggesting the decision had more to do with investor pressure on the mining giant in the wake of a backlash at its annual shareholder meeting than royalty rates.
“This coal mine went against Glencore’s investor expectations and should never have even been considered. Earlier this year, Glencore received a clear message from almost a quarter of its shareholders: fix your climate plan and your approach to coal,” she said.
“Investors were clearly unhappy about the apparent contradiction between Glencore’s public commitments to ‘run down’ the existing coal portfolio, and its pursuit of the highly polluting proposed Valeria coal mine.
“Investors have been engaging heavily with Glencore on coal production expectations. Building a new greenfield coal mine pumping out 16 million tonnes of coal out to 2067 would have been totally inappropriate.”