BHP wields big stick in coal reserve negotiations

Only last year BHP started working on the early closure of its Queensland flagship coking coal mines after the surprise move by that government to increase royalties – a move designed to cash in on surging coal prices.

At the time BHP boss Mike Henry declared the company wouldn’t be investing in any new coal mines in Queensland while this super revenue tax was in place.

But reports emerged that BHP had also set aside $750 million in its accounts for early closure and rehabilitation costs.

BHP made its position clear on NSW’s move to reserve coal via a memo sent to its workers from the head of NSW energy coal, Adam Lancey on Friday. In the missive which was widely reported he stated the company’s position that it didn’t like market interventions because ‘short-term measures have negative long-term impacts’.

At this stage, the government has put a one-year time frame on the price cap.

Like other coal producers BHP is questioning whether the cap and reservation scheme will achieve the federal and state governments’ ultimate goal of lowering the cost of energy for householders and commercial users.

BHP, the world’s largest miner, is also questioning whether it can cover its costs if forced to sell up to 10 per cent of the coal from its NSW Mt Arthur mine at the capped price.

The company would need to find ways to transport the coal to power stations because it decommissioned the infrastructure that originally linked the mine to the power plant.

And it’s a bit fuzzy about whether this would involve breaking existing international sale contracts.

Meanwhile, the communication from BHP looks like a shot across the bow at any attempts by the NSW government to follow the lead taken by Queensland which hiked royalties last year and expects to raise $2.4 billion of additional revenues from them over the next four years.

While the prospect of additional royalties in NSW has spooked coal miners, Perrottet stated publicly the government had no such plans.

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