23-Aug-2023: BHP's Henry responds to Dick move (MiningNews.net)
BHP's response to Queensland lease questions (australianmining.com.au)
Queensland asks BHP to invest in state or risk licence cancellation (mining-technology.com)
From the AFR article (link above - 2nd one from top):
BHP to steer clear of new investment in Queensland
BHP chief executive Mike Henry said the global miner would not make any new greenfield investment in Queensland after the state’s controversial new coal royalty regime made it too risky to invest.
While Treasurer Cameron Dick has threatened to cancel BHP’s mining leases in Queensland unless it continued to invest in the state, the BHP boss acknowledged the company would continue to expand its existing operations to take advantage of strong metallurgical coal prices.
Queensland Treasurer Cameron Dick said mining leases would be cancelled if not used. Photo credit: Jamila Toderas
The Labor government and the mining giant have been locked in a war of words since Mr Dick blindsided the resources sector when he introduced three new tiers of coal royalties in July last year.
BHP is in the process of selling two of its Queensland mines, Daunia and Blackwater, but has kept its most valuable coking coal mines, including Goonyella, Riverside, Peak Downs and Saraji.
Mr Henry said the challenge remained that Queensland’s royalty regime, which required BHP to pay another $700 million last financial year, made other states or countries a better investment destination.
“I don’t think we are saying anything particularly controversial; lower returns, higher risk means other investments become more attractive,” he said after BHP released its results on Tuesday.
“The only thing I would note is we are continuing to invest in these Queensland businesses. BMA [BHP Mitsubishi Alliance] is investing over a billion dollars a year in keeping these operations going because we do see the business as attractive.”
In its statement to the ASX, BHP said the coal royalty hikes had negatively impacted the “investment economics” of Queensland and increased sovereign risk.
“We will not be investing in any further growth in Queensland; however, we will sustain and optimise our existing operations,” it said.
Mr Dick continued his attack on the global miner on Tuesday, saying the Palaszczuk government would follow through with its threat if BHP did not complete its promised investments in Queensland.
He said BHP’s bumper profit of $13.4 billion showed the company had the resources to deliver on its mining leases.
“For all the complaints about progressive coal royalties, for coal, BHP’s underlying return on capital employed came in at a very healthy 47 per cent,” Mr Dick told state parliament.
Queensland coal royalties delivered $15 billion into state coffers last financial year. Photo credit: Glenn Hunt
“The strength of BHP’s balance sheet and the impending windfall it will make from selling the Daunia and Blackwater mines shows just what BHP can achieve when it focuses on its core business.”
Mr Dick said BHP even acknowledged the new royalty regime may push up prices, which means more profits in the future.
But he warned that the Labor government expected big miners to follow through on promised investments or they could face financial penalties or have their leases cancelled.
“We want those companies to properly develop the leases that they have been granted by the people of Queensland. If they fail to do so without legitimate commercial reason, our government has the power to act,” Mr Dick said.
The new system introduces three tiers: a royalty rate of 20 per cent for prices above $175 a tonne, 30 per cent for prices above $225 a tonne and 40 per cent for prices above $300 a tonne.
The new tiers gave Queensland the highest-taxing royalty rate in the world and delivered a staggering $15 billion in coal royalties last financial year.
Queensland Resources Council chief executive Ian Macfarlane, who has vowed to fight the state’s coal royalty regime up to next year’s election, said Mr Dick’s latest threat to cancel BHP’s leases would further shake investor confidence in the state.
“We shouldn’t take for granted that Queensland will always have a strong resources sector to rely on if policies are introduced which make us less competitive and less attractive to investors,” Mr Macfarlane said.
“All Queenslanders will lose out if resources companies move their focus to mining projects in other states and countries because of growing uncertainty about the Queensland government’s attitude towards the mining sector.”
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Further Reading: BHP looks past China’s property woes to mining’s brave new world (afr.com)
Disclosure: I do not currently hold any BHP shares, however I do hold South32 (S32) shares IRL and they own the Cannington Silver/Lead/Zinc mine in Queensland. Interesting that the Qld Government chose to have a barney with BHP and not S32 (which was spun out of BHP a few years ago). However, this is all about coal, and BHP are still into coal, whereas S32 is moving away from coal and have already divested all of their thermal coal assets. The only coal that S32 have now is the Illawarra Metallurgical Coal mine in NSW, and the NSW Government has a far more collaborative approach to mining and mining investment than the combative approach that Queensland appears to be taking, particularly on coal.
19-July-2022: BHP-Quarterly-Activities-Report-Q4-FY22.PDF
Commentary: Strong BHP performance undermined by Qld coal royalties - Australian Mining
Plain text link: https://www.australianmining.com.au/news/strong-bhp-performance-undermined-by-qld-coal-royalties/
Strong BHP performance undermined by Qld coal royalties
July 19th, 2022. By Ray Chan, AustralianMining.com.au
BHP's Olympic Dam operation in South Australia.
A strong fourth quarter has capped off a year of significant progress for BHP, with iron ore leading the way, generating record sales volumes for the 2021–22 financial period.
BHP sold 284 million tonnes of iron ore across the 12 months, as South Flank’s ramp-up to full production capacity (80mt per annum) tracks ahead of schedule.
An average rate of 67mtpa was achieved at South Flank in the June 2022 quarter, contributing to record production from the Mining Area C (MAC) hub and record lump sales.
BHP produced 253mt of iron ore in FY22, with the Western Australia Iron Ore (WAIO) operations making up 249Mt of that and Samarco the remaining 4mt, in line with BHP’s iron ore production from the 2020–21 financial year.
The company said the performance had been underpinned by safe, reliable operations and firm demand for its commodities.
Chief Executive Officer Mike Henry said the year was once again fatality-free and BHP continued to improve safety issues, which included addressing sexual assault and harassment, racism and bullying.
“We delivered record full-year sales volumes at our iron ore business in Western Australia as a result of reliable operational performance and the South Flank project,” he said.
“In copper, Escondida in Chile had record material mined and near-record concentrator throughput, while Olympic Dam in South Australia performed strongly in the fourth quarter after planned smelter maintenance.”
Henry said Queensland metallurgical coal delivered strong underlying performance for the quarter in the face of significant wet weather.
As well, BHP is assessing the impacts on BMA economic reserves and mine lives as a result of the increase in coal royalties by the Queensland Government.
“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,” he said.
“Also during the year, we merged our petroleum business with Woodside, completed the sales of BMC and Cerrejón, and decided to retain New South Wales Energy Coal until the cessation of mining in 2030 subject to relevant approvals.
“We also unified our corporate structure, and added to our global options in copper and nickel.
“Broader market volatility continues and we expect the lag effect of inflationary pressures to continue through the 2023 financial year, along with labour market tightness and supply chain constraints.
“Over the year ahead, China is expected to contribute positively to growth as stimulus policies take effect, however, the continuing conflict in the Ukraine, the unfolding energy crisis in Europe and policy tightening globally is expected to result in an overall slowing of global growth. Our strong focus on safety, operational reliability, cost control and social value will help us navigate these challenges and continue to deliver for all of our stakeholders.”
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About Ray Chan
Editor of industrial titles and mastheads with Prime Creative Media. Publications include Rail Express and Australian Mining (web content). View all posts by Ray Chan →
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Disclosure: From Bear77: I don't currently hold BHP shares, although I do sometimes hold them. I currently prefer FMG for iron ore exposure and S32 (which was spun out of BHP) for base metals and silver exposure.
Increase in QLD coal mine royalties could be a risk for BHP as they have met coal assets in Bowen Basin.
Is it possible that the biggest short in the history of BHP was a big mistake? In hindsight it certainly seems that way?
On the 28 January BHP was the most shorted stock on the ASX with a whopping 17.63% of shares shorted. The shorts spiked by an incredible 7.18% in just one day on the 28 January 2022 (www.shortman.com.au). Why?
Stephen Bartholomeusz explained why BHP was sold short prior to the unification (The Sydney Morning Herald, 19/01/2022).
‘For most of the two decades since the formation of the dual-listed structure (although not always) the Plc shares have traded at a material discount to Ltd’s, generally in the mid-teens although it has been as much as 20 per cent.’
Following the LSE delisting a Plc share had exactly the same rights and entitlements to earnings and dividends as a Ltd share – providing a windfall to Plc shareholders as the historic discount is wiped out by unification.
That largely happened early on. From the moment unification was announced Ltd shares have fallen and Plc shares risen.
What was a Plc discount of 21 per cent immediately ahead of the unification announcement has been closed to less than 3 per cent as arbitrageurs sold BHP shares short and bought Plc shares that they will use to cover their positions, at tidy profits, once the unification is complete.
Ltd shares have fallen about 10 per cent and Plc shares have risen about 3 per cent since the corporate restructure was announced.
BHP’s independent expert, Grant Samuel thought there could be as many as 450 million shares sold as British and other foreign shareholders exit the register.
Against that, BHP’s weighting in the ASX has increased materially, from about 6.2 per cent to about 10 per cent. Australian index investors and those funds benchmarked against the ASX indices have been be buyers.
Now the register has settled, the unified BHP is trading on its performance and prospects. Unification has had no material impact on either.
What happened on the 28 January?
The BHP Plc Scheme (Unification) became effective on 28 January 2022. Plc Shareholders (BHP shares listed on the LSE) received one New Limited Share for each Plc Share they held.
Despite the 7.18% jump in short positions on the 28 January coinciding with the unification, the BHP share price increased by 2.7% to $46.92. It would seem the impact of short activity on the 28 January was outweighed by a BHP buying spree.
Normal trading in New Limited Shares on the ASX as a result of the unification under the ticker “BHP” commenced on 2 February 2022. The BHP share price closed at $45.64, again it was up on the previous day.
After 3 days of normal trading (Friday, 4th Feb 2022) the BHP share price closed at $46.81. There were still no signs of a collapse in the share price as a result of the unification. Why?
In my view the 21% discrepancy between the BHP Plc share price (LSE) and the BHP LTD (ASX) immediately prior to the unification announcement share price has already closed. Funds were quick off the mark in discovering there were huge profits (20% in fact) to be made by selling down BHP Ltd shares and buying BHP Plc shares.
This all happened very quickly after the announcement. In less than a week after the announcement the BHP Ltd share price had dropped from $52.81 to $44.46.
What happen with the Short Positions?
The unification of BHP did not collapse the share price as shorters were hoping for and this did not provide the opportunity to close positions at a profit.
Then on the 15 February BHP released an incredible 1H22 result with NPAT up 144% pcp.
Iron ore prices are trending up again and the future prospects are looking good.
The BHP share price is now climbing toward $50.
Since the unification of BHP Shorters have been scrambling to close positions, now almost non existent (0.56% on the 11 Feb).
To some extent I think shorters have helped to drive up the share price! Ouch, that must have hurt! :)
So in hindsight was the Big BHP Short just one Big Mistake?
1:24pm, 01-Feb-2022: There have been some isolated cases of Covid-19 in WA's mining industry, and BHP is one of the companies that has been affected.
COVID cases isolate dozens of WA mine staff - Australian Mining
At this stage, the management of all of the affected mines are saying there have been no material impacts to production. It does however feed into the skilled worker shortage that WA is experiencing. There are now even ads on Adelaide buses spruiking WA as a place with PLENTY of work, so worth considering a move over there. Seems out of step with their refusal to open their border and allow people in though.
I'm thinking that these conditions are very positive for a company like Mader Group (ASX: MAD) as long as they can keep their own workers Covid-free. Mader provide fitters and other skilled workers - especially heavy duty mobile and fixed plant mechanics - to various industries, but the mining industry is their bread and butter, with earth-moving/construction also providing MAD with plenty of work. My brother is one of those (HD plant mechanic) and he's working at S32's Worsley Alumina refinery (which was majority owned by BHP before the South32 spin-out/demerger). He doesn't work for Mader - he works for another labour hire company that also provides workers to the mining and minerals processing industries. Those labour hire companies are doing very well at the moment, especially in WA, and remember that WA only has a small fraction of people with Covid-19 compared to the eastern states and SA. If the Covid problem gets worse there, I reckon the labour hire companies are only going to get busier. They already have rising metals/materials prices as a tailwind, which is resulting in further activity in the sectors they operate in. I think Mader provides the purest exposure to that and I do hold Mader shares, and S32 shares - but not BHP at this point.
