In June, the Palaszczuk government increased their coal royalty program on what was already one of the highest coal royalty structures in the world.
Following the latest round of quarterlies, coal companies operating in Queensland are starting to report the significant impacts of the new regime, with the likely potential to deter future investment in the state, damaging the mining industry and investor confidence.
Originally, the three-tier coal royalty regime allowed the Queensland government to take 7% of revenue up to $100 a tonne, 12.5% of the sales between $100 and $150 a tonne, and 15% of any revenue above $150 a tonne.
Then in June, amidst the soaring price of coal, the Treasurer, Cameron Dick, added three new tiers to that system. The Queensland government now takes 20% for prices above $175 per tonne, 30% for prices above $225 per tonne and 40% for prices above $300 per tonne.
To put these figures into perspective, the NSW coal miners pay a maximum royalty rate of 8.2%. if the coal requires underground mining, they pay 7.2%, and if it requires deep underground mining, they pay 6.2% in tax.
Originally, the increase was expected to gain $1.2 billion over four years from the taxes.
However, Queensland Resources Council (QRC) chief executive Ian Macfarlane, stated that they have collected that amount within just three months of the new royalty rates.
This reveals serious concerns on the forecasting predictions, which will not only impact “its viability, but also on investor confidence in investing in new projects,” Mr. Macfarlane states.
Initially, BHP (ASX: BHP) was forced to halt their Blackwater South coal mine in central Queensland, to reassess its investment plan for the project going forward.
But then in its quarterly report released yesterday, BHP has outlined that the top end royalties were a “serious concern” and a “threat to investment and jobs in that state,” and as a result, are unable to make significant new investments in Queensland.
Terracom (ASX: TER) reported this week in their quarterly that they paid royalties of $56million in the September Quarter on thermal coal sales of 452,000 tonnes. Tonnages were down in the quarter due to scheduled maintenance work, but the company is still forecasting annual sales of 2.2million tonnes for FY2023 – extrapolating that forecast with last quarters received coal prices, it is conceivable that Terracom will pay the Queensland Government over $270million in one year – or 30% of its current market capitalisation. By Corporate Connects estimates, a touch over 30% of Terracom’s EBITDA will go straight to the Queensland Governments coffers.
The windfall currently being reaped by the Queensland government fails to take into account how profit is made in companies that take on the huge long-term risks associated with the exploration and development of major projects that are subject to the volatility of commodity prices
Japan has also got involved.
Japanese ambassador to Australia Shingo Yamagami, has stated that Japanese companies are now uncertain about investing in Queensland as a result of the increases.
“Make no mistake, this is a huge shock for Japanese companies,” Yamagami stated in his speech at the University of Queensland.
Japanese firms, Mitsui & Co Ltd (TYO: 8031), Mitsubishi Corp (TYO:8058) and Idemitsu Kosan Co Ltd (TYO:5019) all have major coal investments in Queensland, and are currently looking at new investments in minerals, hydrogen and renewables such as rare earths. This requires a mutual trust with the government.
As a result of this new scheme, Japan is now rethinking such plans to invest in Queensland, “firstly based on the way they’ve been treated, and secondly because the government has changed the goal posts on them without any consultation, which has affected their return on investment,” Mr. Macfarlane stated.
Despite, the Treasure’s claims that the new taxes would benefit the residents of Queensland, particularly those living in regional areas of the state, the new regime looks as if it may deter future project investment – potentially affecting employment and the State’s overall economy.
