The new royalty schedule increases costs for mining companies, although the impact will depend on coal prices. While the Queensland authorities maintain that costs will rise only if coal prices stay high, miners warn the royalty increases will discourage new investment.
“We know the foreign shareholders of coal companies won’t like these changes,” Cameron Dick, the treasurer of Queensland, said when he announced the new rates in late June.
With coal prices rising due to Russia’s invasion of Ukraine and supply restrictions, the state government’s decision is aimed at ensuring the people of Queensland benefit fairly from a finite resource, Dick said.
Queensland has adopted a schedule of royalties that rise with the price of coal. Under the previous regime, a royalty of 7% applied to coal that sold for up to 100 Australian dollars (US$68.52) per tonne, rising to 12.5% for prices up to AU$150 and 15% for prices above AU$150.
Starting this month, the previous maximum royalty of 15% applies to coal sold at prices up to AU$175, increasing to 20% for prices up to AU$225, 30% for prices up to AU$300 and 40% for prices above AU$300. Based on a price of AU$500 per tonne, coal miners will pay royalty fees of around AU$130, twice as much as under the previous rate schedule.
Producers have criticised the steep increases. Mike Henry, CEO of Australian miner BHP Group, said in a production report in mid-July that the near tripling of top-end royalties has worsened what was already one of the world’s highest coal royalty regimes, threatening investment and jobs in the state.
Nick Barlow, CEO of the Australian unit of British mining company Anglo American, said, “Significant capital investment is required to sustain mining operations, including in constructing and preparing mining areas, mining equipment and infrastructure,” adding, “in a highly cyclical business, we need higher price periods to make these investments, which not only create jobs and support our regions, but also benefit the Queensland economy”.
Steam coal used in electricity generation goes for more than US$400 per tonne at present, up from less than US$50 two years ago. Coal prices are affected by the international political environment, weather and other factors. Heavy rains and bush fires, for example, can damage mining equipment, hampering production. Labour and fuel costs have also risen sharply.
“It is wrong to think that foreign investors are raking in unearned income” due to coal price increases, said an official at a Japanese company with coal mining interests in Queensland.
Producers are upset by what they see as a lack of dialogue with the state government. “I wonder why only the coal royalty rate system has been changed? There have been no explanations about what options (the state government) examined,” said another official at the Japanese company.
If Queensland’s decision leads to similar moves by other states, new investment in resource development could become more difficult.
Australia, a developed country rich in natural resources, open to foreign investment and known for its transparency, is a popular place for Japanese companies to put their money.
The government of Queensland stressed that its relationship with Japan is strong and important. A person familiar with the matter said that in order to maintain and develop that relationship, the state government needs to offer plausible explanations and incentives to investment companies and business enterprises.