Queensland Coal Shock

Australia | Jun 23 2022

Stunned, shocked, surprised, was one brokers response to the Queensland governments significant coal royalty increase. What impact on coal miners?

-First royalty increase in ten years
-Far greater than ever feared
-Likely to put upward pressure on coal prices

By Greg Peel

Right now the Queensland Labor government collects royalties on the states thermal and metallurgical coal production, net of insurance and freight, of 7% up to a price of [AUD] $100/t, 12.5% for $100-150/t, and 15% above $150/t. The current price of met coal is $545/t and the five-year average is $290/t, UBS informs us.

See an opportunity? The Queensland government certainly has.

Included in this weeks Queensland budget, as of July 1 the new royalty levels will be 20% on $175-225/t, 30% on $225-300/t and 40% above $300/t. Its the first time in ten years the Queensland royalty tiers have been altered.

The NSW Coalition government also released a new budget this week, and kept its coal royalty levels at 6.2-8.2%.

The Queensland government introduced its new levels without any consultation with the industry. The Minerals Council of Australia notes that after adding a 30% federal income tax to the 40% royalty on Queensland coal at current prices, the state has the highest taxing mining jurisdiction in the world.

Coal miners with Queensland operations include BHP Group ((BHP)), Coronado Resources ((CRN)), New Hope Corp ((NHC)), Bowen Coking Coal ((BCB)), TerraCom ((TER)) and Yancoal Australia ((YAL)), as well as Anglo American and Glencore.

Whitehaven Coals ((WHC)) Queensland development wont start production until after 2026, while South32s ((S32)) coal production is all in NSW.

Goldman Sachs suggests of the group above, only BHP and Coronado will see major impacts, given 60-70% of their coal production is in Queensland. The broker has thus lowered its price target on BHP to $42.10 from $42.90, and Coronado to $2.70 from $3.10.

Among the seven FNArena database brokers (of which Goldman is not one) covering BHP, only four have to date responded to the new royalties and the consensus target has fallen to $46.05 from $47.79.

The consensus target among the three database brokers covering Coronado has fallen to $2.77 from $3.06.

Stunned, shocked, surprised I dont think there is any other response, was the reaction from Shaw and Partners coal analyst (Shaw is also not a database broker). The potential impact on jobs, industry growth, investment decisions should not be underestimated BHP has asserted that in its initial response. We do acknowledge that natural resources are owned by the state and managed on behalf of the electorate. But this move has gone way beyond

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