Q&A with Adam Lancey, BMA’s asset manager for Bowen Basin coal mines

Where would BHP invest if taxes pushed it away from coking coal? And what’s the incentive for the state government to cut royalties when it expects met coal to shrink? See BMA’s answers.

BHP Mitsubishi Alliance (BMA) asset president Adam Lancy at Goonyella Riverside Mine. Photo: Cameron Laird

Adam Lancey is BMA’s asset manager for its Bowen Basin coal mines.

He sat down for an exclusive interview with the Daily Mercury to discuss the future of the met coal industry, where investment may go, and how he sees BMA’s workforce changing over time.

His main issue was a lack of consultation regarding changes to royalties, after the then-Palaszczuk government introduced a 40 per cent royalty charge for coal companies for when prices in the market surpassed $300 a tonne.

The below conversation has been edited for clarity and length.

How much coal did you produce last year?

So from a production point of view, around 40 million tonnes.

The divestment of Daunia and Blackwater throughout the year meant that there was a bit of a shift in the overall output for BMA that was expected and anticipated by virtue of the transaction.

What does BMA expect this year?

We’re not expecting to see a material change over the next few years. As we’ve released in our medium term guidance, BHP reported in their operating review, we’ll look to sort of lift that number to around 43 to 45 million tonnes.

But we want to do that in a sustainable way, and really just drive some credibility back into the forecasting that we can deliver.

What’s the split between coking coal vs. lower quality coal?

The real advantage now that BMA has is that the five remaining mines produce a really high percentage of high quality coking coal. And even what we call our lower grade product is actually that a lot of other mines around the place to be quite envious about.

So the total percentage of our premium hard coking coal is north of 90 per cent and we’re not looking to produce any thermal coal out of that Bowen Basin region.

You’ve said a lack of engagement with industry meant that BHP has had opportunities to invest with better returns and lower risks elsewhere. You’ve mentioned WA, SA, can you give me examples on that?

We’ve got significant growth plans in copper, which we’ve spoken about.

We’ve obviously continued to invest in our iron ore operations, so we’ve got some growth opportunities there. We’ve also been investing in potash in Canada.

What about a like-for-like comparison with met-coal? If it’s being said that Queensland’s increased royalties, lack of consultation is a disincentive for funding, if BMA is still keen on growing where would that money go instead?

So when we look at BHP and the way it deploys capital, it’s obviously looking at a diversified portfolio. The rate of return is really dependent upon the commodities that we want to face or play in.

But you know, in terms of metallurgical coal, primarily, that decision is around the Bowen Basin and our assets in Queensland.

We’ve got a range of other commodities that can generate alternatives for us.

Just to be specific, if the increased coal royalties are a disincentive for investment into met coal in Queensland, where will you spend money to grow your met coal business, if you still believe there is room to grow it?

Well we won’t grow it essentially. Our assets that we own for met coal are in Queensland. There are opportunities to grow that business should we choose to, but at the moment we are not strongly referring to those options because we are preferring to put that money elsewhere.

All of the players that play in the resources industry be that critical minerals, met coal or thermal coal, have those sorts of investment decisions to make.

The federal government predicts met coal demand is going to rise for the next two years before dropping about one to two per cent annually over the next decade or so. Does BMA accept that prediction?

We might have a slightly different outlook based on the fact that we’re producing probably a premium coking coal product.

That is going to be in strong demand even as they go through a decarbonisation journey in a lot of steel mills around the globe.

We’ve seen tremendous demand from India and that is showing no signs of abating.

China remains strong in terms of steel demand. You could argue it’s softening, but it’s still holding or slightly growing.

Do you expect coal prices to remain at levels where you will be paying 40 per cent in royalties?

We’re optimistic that the prices will remain reasonably strong based on demand. I don’t think we’ll see sustained prices that we’ve seen off the back of some of the external impacts in the last couple of years.

There is talk within the resources sector the decision to raise royalties without ‘consultation’ in Queensland was a slap in the face. Would you call that accurate?

I think it’s just frustrating to have a position where with no consultation, with no heads up, with no indication that this was even something that was being contemplated, it’s announced, and it has such a huge impact.

According to the polling, the LNP looks like it will win. Do you anticipate a better working relationship with an LNP government vs. the current?

With the LNP we’re making it clear that we would like to think that they have a more collaborative approach to discussing those sorts of issues with the industry moving forward.

Regardless of who’s in power, we just want to see that we get a more constructive dialogue.

I know BMA loves talking about money in investing communities, suppliers, charitable donations, etc. You noted $26m in voluntary community contributions over two years. Isn’t $26m a rounding error compared to how much money gets brought in by the royalty changes?

That’s a number that’s directly related to that pure community investment, we’ve not wavered from that commitment.

More broadly, I think the actual contribution to communities it is a number a hell of a lot larger than that when you include suppliers, our local buying program, direct contributions through our wages, and the knock on effect of that into the communities we’re obviously supporting like Moranbah.

BHP made a ploy to acquire Anglo - what would BMA look like with those assets?

I haven’t given that a lot of thought. That transaction was highly publicised at the time. It’s not on the agenda now.

What’s your medium term view of what your mines will look like? How many people will be employed?

I suspect that will remain reasonably steady with our workforce while those volumes remain at current levels, and then if we can grow them, there’ll be opportunities to increase.

We’re probably sitting at around a workforce size of 8500. We’ll continue to support that, but there’ll be decisions that will come and go around contractor mixes.

Another point that the Resources Council and people in the industry love getting across is that you want to deepen the pool for royalties, and encourage more people to be in there. So even if companies pay less individually, more money can be drawn from a wider pool?

Absolutely. There’s multiple ways that you can raise more royalties, and one of those is to produce more product.

The government predicts that overall volumes are going to fall anyway. If it believes there is going to be less met coal being shipped in general, maybe it is moving early to increase the amount of revenue per unit?

I think that’s a strange kind of view to take.

You’re going to accelerate the demise as the industry is sort of contracting.

If you hit it harder and harder so you get as much as you can, you’re probably going to accelerate that sort of conclusion.

I don’t know if that’s the best way for the government to go about it. I’m not sure if that’s what they’re doing. What we have seen is a general agreement that demand will remain strong for decades to come.

The goose that lays the golden egg is one that you need to foster and support, rather than try and squeeze as much as you can out of.

Originally published as Q&A with Adam Lancey, BMA’s asset manager for Bowen Basin coal mines