Qld premier vows no new coal royalties
Mr Campbell made the comments on Wednesday while opening the Daunia coking coalmine near Moranbah, which will become the seventh mine to run under a long-standing partnership between BHP and Mitsubishi.
The Australian coal sector has been struggling due to lower commodity prices, high costs, union disputes and even flooding in recent years, and Mr Newman added to those challenges in 2012 when he increased coal royalties for miners.
The move angered miners and prompted some such as Xstrata to suggest that more than 30 per cent of Australian coalmines were unprofitable.
Mr Newman used his appearance at Daunia to reassure BHP and Mitsubishi that there were no more royalty slugs looming.
"We didn't like to do it, there won't be any further changes and we are certainly trying to give people some [cost] offsets elsewhere," he said, while standing beside BHP's coal president, Dean Dalla Valle.
"We are doing everything we can to put on the table regulatory reform that will mean mines can find operating cost savings."
The start of production at Daunia, which has been ramping up since March, is another step forward for the BHP Mitsubishi alliance as it seeks to improve profitability across the division.
The mine was delivered several months early and about $US250 million under budget, giving hope that the nearby Caval Ridge Mine will also come in on budget within the next 12 to 24 months.
The extra 15 million tonnes of coking coal to flow from Daunia and Caval Ridge each year will help the alliance reduce its unit cost, which is believed to be only just below the benchmark price for coking coal.
Coking coal prices were testing $US220 a tonne 14 months ago, but have slipped below $US150 numerous times in the past year, and were $US147 a tonne this week.
That slide pushed BHP's coal division to an underlying loss for the first half of fiscal 2013, which was only turned into a $US746 million full-year profit by fierce cost cutting and production increases.
"We have been suffering ... because of the very high cost of contractors, high cost of commodities and high cost of operations," Mitsubishi executive Kanji Nishiura said. "We have to say goodbye to the past of high-cost operations."
The alliance in Queensland reduced costs by 30 per cent in the second half, and JPMorgan has estimated the mines' average cost of production is now closer to $US120 a tonne. All seven mines are believed to be profitable.
The alliance struck a three-year workplace deal with miners a year ago, which has delivered a more stable operating environment.
Mr Dalla Valle said despite tight margins, there was still a strong long-term demand for coking coal.
Frequently Asked Questions about this Article…
Premier Campbell Newman promised there will be no further increases to Queensland coal royalties, saying the government wants a more stable royalty framework and will try to provide cost offsets elsewhere. For investors, that reduces a key regulatory uncertainty for coal companies operating in Queensland, which could help planning and near-term profitability.
The 2012 royalty rise angered miners and prompted warnings from companies such as Xstrata that more than 30% of Australian coalmines were unprofitable. The episode highlights how higher royalties can squeeze margins and make otherwise marginal mines loss-making.
Daunia is the seventh mine to operate under the long-standing BHP–Mitsubishi partnership. It has been ramping up production since March, was delivered several months early and about US$250 million under budget, and helps the alliance increase output and lower unit costs.
The two projects are expected to deliver an extra 15 million tonnes of coking coal a year (combined). That additional volume should help the BHP–Mitsubishi alliance reduce its unit cost of production and improve margins.
Coking coal tested around US$220 a tonne about 14 months ago but has slipped below US$150 several times in the past year and was US$147 a tonne the week of the report. The price slide pushed BHP’s coal division to an underlying loss in the first half of fiscal 2013, only turned into a full-year profit of US$746 million after aggressive cost cutting and production increases.
The alliance reduced costs by about 30% in the second half, and JPMorgan estimated the mines’ average cost of production is now closer to US$120 a tonne. According to the article, all seven mines are believed to be profitable at that cost level.
The alliance struck a three-year workplace deal with miners a year earlier, which has delivered a more stable operating environment and helped improve predictability for production and costs.
Caval Ridge was expected to come in on budget within the next 12 to 24 months from the time of the report. For investors, an on-budget delivery would support the alliance’s plans to add production, lower unit costs and help restore profitability across the coal division.
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