Coronado lowers coal forecast and slams Queensland royalty regime
The company says Queensland’s onerous coal royalty regime has made the industry less resilient as rain forced it to shut down a mining fleet and lower production forecasts.
Coronado Global Resources says Queensland’s onerous royalties regime has made the industry less resilient to external shocks, as the company announced it would shut down another mining fleet at its Curragh coal mining complex due to adverse weather, pushing its expected production down by one million tonnes this year and sending costs higher.
The company’s shares were hammered on the news, falling 16 per cent in early trade to 92c.
Coronado told the ASX that it had already flagged that repairs to its overland conveyor at Curragh would impact metallurgical coal production, but the site was also hit by rainfall more than three times the 10-year monthly average in August.
“The impacts of this rain were well in excess of forecast,” Coronado said.
“The subsequent delay to pre-strip activities has resulted in some coal production being deferred into FY 2025.”
The company said that given expected rainfall levels for the remainder of the financial year, it was forecasting more conservative production for the fourth quarter.
“To mitigate the weather impacts to production, in October 2024, the company plans to temporarily idle an additional fleet at the Curragh Complex to reduce costs,” Coronado said.
“If idled, the Curragh Complex will have removed six fleets from operation since April 2024.”
Coronado said the equipment to be idled was “less productive and cost-effective when operating in elevated rainfall periods’’.
The company is now expecting its saleable production to be between 15.4Mt and 16Mt, down from a previous forecast of 16.4Mt-17.2M4.
The average mining cost is also expected to increase from $US95-$US99 up to $US105-$US110.
Capital expenditure will stay steady at $US220m-$US250m.
Coronado managing director Douglas Thompson said the company would forge ahead with its organic growth projects, which were the expansions at its Buchanan operations in the US and the Mammoth Underground at Curragh.
“These projects we expect will deliver substantially higher production rates from FY 2025 and will significantly de-risk our operations against weather impacts, mechanical issues and bottlenecks in the future,” he said.
“As our Curragh Complex enters a period of expected adverse weather impacts in Queensland, we have decided to temporarily idle an additional fleet to make the business unit more resilient to higher costs associated with poorer mining conditions in wet periods, short term expected lower market pricing due to an oversupply of steel in the market, persistent industry inflation; and elevated cost structures imposed on our industry by the ongoing extreme Queensland royalties.
“The extreme royalties in Queensland have in large part removed the industry’s resilience to the volatility of the natural market commodity cycles.
“As a result, Coronado will plan its mines in Queensland to be more market agile and the steps to temporarily idle an additional fleet are aligned with this plan.
“Coronado remains committed to our Curragh Complex and Mammoth Underground project, as these significant metallurgical coal assets present substantial long-term value to our shareholders, however, the significant cost imposition placed on all Queensland coal miners from the higher royalties is making these types of investments less competitive.”
Mr Thompson’s comments regarding royalties mirror concerns raised by Whitehaven Coal managing director Paul Flynn, who said last month that metallurgical coal customers were so worried about future supply they were buying stakes in Australian mines.
Nippon Steel, which bought 20 per cent of Whitehaven’s Blackwater operations in Queensland, confirmed this, saying the royalty regime was stymieing new investment, and threatening future supplies of the key steelmaking ingredient.
“Currently, there are growing concerns that capital investment in coal assets will shrink due to the implementation of policies to raise coal royalty rates in Australia’s states, which hold significant influence over the supply of steelmaking coal to the seaborne market,’’ the company said.
“This will certainly contribute to a decrease in the supply of steelmaking coal in the long term.
“Given the strong sense of urgency in respect to this decrease in the supply of steelmaking coal, Nippon Steel has determined that, as an end-user of steelmaking coal, it is necessary to invest in the Blackwater Coal Mine to secure a long-term stable supply of coking coal required for Nippon Steel’s technologically advanced coke production.’’
Queensland in 2022 introduced a new coal royalties regime under which royalties scale from 7 per cent at a coal price of less than $100 per tonne, up to as much as 40 per cent if the price exceeds $300 per tonne.
The higher tiers of the royalty rates only apply to the proportion of the price above the cut-off level, similar to the operation of personal income tax brackets.
This followed a 10-year freeze on coal royalty increases.
Morgan Stanley hosted a webcast with S&P Global this week on the coal sector, and said one of the key takeaways was that metallurgical coal prices had dropped due to ample spot market supplies and lacklustre demand on weak steel prices.
“In the medium term S&P think weakness in China steel demand won’t be offset by higher India demand as they think it will be tough for India to meet their 2030 steel targets, however in the longer term supply could be tight,’’ Morgan Stanley said.