Has BHP (ASX:BHP) quietly dropped its boycott of investing in coal in Queensland in protest at the Labor Government’s significant increase in coal royalties?
After spending much of 2023 and 2024 telling anyone who would listen that they would not invest because of the royalty increase, the issue wasn’t mentioned in Wednesday’s financial year operations report from the big miner. In the same report, BHP revealed plans to expand its existing mines over the next five years.
BHP initially raised concerns when changes to the royalties regime in 2022 raised coal royalties to the highest maximum rate globally, resulting in an additional $US300 million in royalties paid to the Queensland Government by BHP for the December 2023 half-year.
Royalties were increased after coal prices soared following the Russian invasion of Ukraine in early 2022—premium coking coal prices surged past $US300 a tonne, briefly exceeding $400 a tonne (equivalent to $A500 to $A600 a tonne). Prices have since fallen back under $US300 a tonne, but remain close to $A400 a tonne.
“Given the negative impact on investment economics resulting from the change in coal royalty rates and the increase in sovereign risk due to the decision to raise royalties without consultation, we will not be investing in any further growth in Queensland,” the company stated in its half-yearly report in February of this year.
However, BHP provided an exception by stating, “However, we will sustain and optimize our existing operations.”
And that’s precisely what they plan to do at its Queensland coking coal joint venture, BMA. Although the scale of investment and objectives would resemble building one or two new mines, brownfield expansions are more economical than new mines.
The decision to expand existing mines follows BMA’s sale of two Queensland coking coal mines, Daunia and Blackwater, to Whitehaven Coal, effectively transferring 10 million tonnes per year in coking coal output and sales (five million for BHP alone).
Now, BHP’s BMA joint venture with Mitsubishi plans to replace this from its existing mines over the next five years.
Shared with Mitsubishi, the cost is likely to be as much as the $US4.1 million BHP received from the sale of the two mines to Whitehaven.
The news, buried in BHP’s 2023-24 operations report released on Wednesday, also suggests that the company has no plans to purchase nearby coking coal mines operated by Anglo American, which will be available for sale in the next year.
The sale of Daunia and Blackwater means production and sales from BMA (the JV with Mitsubishi) will decrease this financial year.
Output for the year ending June, prior to the sale, was 44.7 million tonnes, despite what BHP described as “a challenging year at BMA.”
"Production was also affected by an extended longwall move and geotechnical faulting at Broadmeadow during H1 FY24, and the temporary suspension of operations following the fatality of a team member at Saraji,” BHP explained.
Blackwater and Daunia produced 5 million tonnes of coking coal in the year ending June, accounting for BHP’s 50% share, totaling 10 million tonnes.
In its report, BHP stated, “We have plans in place to increase production to between 43 and 45 Mtpa (100%) over the next five years.
"Production for FY25 is expected to be between 16.5 and 19 Mt (33 and 38 Mt on a 100% basis), reflecting the divestment of Blackwater and Daunia and the impact of elevated strip ratios as we continue to improve supply chain stability and re-establish raw coal inventory positions.
"Over the next five years, we expect to increase production to between 21.5 and 22.5 Mtpa (43 and 45 Mtpa on a 100% basis) once BMA is operating with sustainable inventory levels and strip ratios normalize.”
Given the slowing outlook for coal, there is doubt that BHP itself or through BMA could justify a new greenfield coking coal mine in Queensland from now on, especially when it has left the door open to the cheaper option of expanding existing operations.
Ultimately, the threat to the Queensland government not to invest in a new mine turned out to be rather hollow.
BHP’s expansion in South Australian copper has exceeded expectations and helped push total production across the group to a record high, targeting 2 million tonnes of red metal this financial year.
Thanks to a successful year at Escondida and Spence in Chile, BHP saw total copper metal production reach nearly 1.9 million tonnes, a 9% increase. The forecast for this financial year is another 10% lift.
Key to this was the acquisition of OZ Minerals for $9.6 billion.
BHP noted in Wednesday’s release that, “Successful integration following the acquisition of OZL in FY23 and strong underlying operational performance across the assets delivered increased production, as well as record material mined and concentrate smelted at Olympic Dam.
"We have surpassed our planned annualized synergies, such as processing Prominent Hill and Carrapateena concentrate at Olympic Dam into higher-margin cathode and refined gold, resulting in annual records for cathode and gold production at Olympic Dam.
"The successful commissioning and ramp-up of Crusher 2 led to record material mined and concentrate produced at Carrapateena."
Production from South Australia is expected to range between 310,000 and 340,000 tonnes, weighted towards the second half (314,000 tonnes were produced in 2023-24).
BHP teased significant news to come from the highly prospective Oak Dam prospect near Olympic Dam. Oak Dam appears to be a smaller version of Olympic Dam with high values of copper, gold, uranium, and silver.
“We expect to provide an Inferred Mineral Resource at Oak Dam later this calendar year,” BHP said.
BHP is now clearly the world’s largest copper company, a welcome success story after its nickel setback.
