• BHP did not deliver capital guidance for its BMA coal mines in Queensland last year after new royalty tiers drawing billions for Qld were introduced last July
  • While CEO Mike Henry also cited China’s coal ban as a factor, its capex strike looks likely to continue
  • BHP reports its quarterly performance tomorrow

BHP (ASX:BHP), one of the world’s largest suppliers of metallurgical coal, has quietly declined to provide capex forecasts for its world-leading BMA business in Queensland since the State Government of Annastacia Palascszuk went rogue and lobbed royalty increases that will rake in billions in extra revenue this year.

We have no comment either way on the matter, but the coal miners remain furious at what they call a cash grab with an upper royalty rate of 40% on sales beyond $300/t Aussie.

Coal miners, even those in Queensland, remain stupidly profitable. Even junior Terracom (ASX:TER) was able to pay its now quarterly dividend at 10c a share in the September quarter despite the impact on the royalty lift on its Blair Athol mine.

BHP, other miners and the Queensland Resources Council remain steadfast in their opposition to the royalty (and any question of a coal profits tax from the Feds to cover soaring domestic power prices).

Let’s go back in time a bit.

Back at the miner’s AGM in November Stockhead asked whether the company would still be suspending capital guidance on the BMA assets, which are expected to produce 58-64Mt of coking coal on a 100% basis in FY23, if the royalty regime wasn’t in place. BHP boss Mike Henry suggested China’s ban on Australian coal was another factor.

“It’s a bit hypothetical, they have and we don’t. It would really depend on how we’re seeing demand… so right now we’ve got two things in play, we’re (also) not able to ship any Australian coal to China, the world’s largest steel market,” he said.

“Thankfully there has been good demand in other markets, so … the coal that we are producing, we’ve been getting all that coal at reasonably good prices.

“But against the backdrop of constrained markets, because of being shut out of the Chinese market, compounded quite significantly by the change in the Queensland royalty regime, which is both an issue of quantum, so three-fold increase at the top end, but also method, in that it’s just decided, no consultation with industry, and put in place.

“So for us, the economics of the existing business as well as the economics of any expansion, are going to look less good.”

 

Back in Beijing

BHP remains convinced met coal will play a major role in the global economy for years to come, given its inalienable role reducing iron in the blast furnace, expected to be the dominant steelmaking method for at least 20-30 years.

One aspect of the rationale for suspending capital guidance at BMA has shifted though.

China is letting Aussie coal back in (along with a not so healthy dose of coronavirus after finally deciding to reopen its economy late last year and let the bug roam free among its populace ahead of Lunar New Year.)

We decided to go back and ask the question on whether this changes anything around BMA, though the answer for now seems to be that nothing has, with the *cough* ‘Coal War’ between miners and the Palascszuk Government still persisting.

China’s ban was in place for a fair while, almost two years, before BHP decided to suspend capital guidance at BMA in response to the royalty hike. BHP reports its December quarter operational review tomorrow.

BHP stayed mum when we asked about reports from Bloomberg it had sold coal cargoes into China already, saying they don’t comment on commercial matters.

 

Views on China

At the very least BHP’s views on China, which CEO Henry was bullish on at last November’s AGM despite the then parlous state of its steel industry, property sector and economy, will be of interest.

The world’s biggest miner has, so far, been proven largely right.

Iron ore, despite taking a hit on some Chinese Government jawboning over the weekend, has risen around 50% from under US$80/t to ~US$120/t since late October.

After hitting an official growth rate of 3% in 2022, its second lowest rate in 46 years and well below its 5.5% target if the National Bureau of Statistics can be believed (which it often can’t), commentators are more bullish about what 2023 has in store.

“The upshot is that, while not as bad as feared, activity at the end of 2022 was still depressed, leaving plenty of upside as disruption from the reopening wave of infections eases,” Capital Economics senior China economist Julian Evans-Pritchard said.

“High frequency data suggest that this rebound is already well underway. After a slump in December when COVID spread rapidly across the country, our mobility tracker has jumped in recent weeks and is now back around pre-pandemic levels.

“And there are signs of a nascent recovery in home sales this month, which could translate into a pick-up in construction activity later this year. We recently turned more optimistic on the near-term outlook and expect China’s economy to grow by 5.5% this year.”

Rio Tinto (ASX:RIO) led out in front of BHP with its quarterly production results yesterday, hitting guidance at its iron ore operations and shipping at a rate of over 349Mtpa in the final quarter after what CEO Jakob Stausholm said was a record second half for its Pilbara mine and rail operations.

But it warned of higher than expected unit costs at its Pilbara iron ore business, the largest seaborne iron ore exporter in the world, and a potentially fraught global economic landscape to navigate in 2023.

“The global economy continues to slow, but some external pressures have eased, with the change in China’s stance on COVID controls, the fall in energy prices alleviating cost pressures, and markets anticipating a slower pace of interest rate hikes,” the mining giant said in its report to investors.

“Global supply chain pressures have also improved and freight rate pressures have eased. However, the Russia-Ukraine war continues to pose energy and food security risks, while fears of recession in the US and Europe remain.

“China continues to provide support to its economy on various fronts, including the infrastructure and property sectors.

“However, the end to COVID controls in December and the subsequent wave of COVID cases bring high volatility in the coming quarter, with increased short-term risks of supply chain disruptions and labour shortages.

“Although more financing is being provided, consumers remain cautious of the property market. The country’s trade balance remains healthy, but slowing global demand poses downside risks to exports.”

 

 

Rio Tinto (ASX:RIO) and BHP (ASX:BHP) share prices today:

 

 

 

Could 2023 be the year for Simandou?

Rio Tinto could well make a decision on investing in its share of the Simandou mine in Guinea this year, where it spent US$189 million in 2022 evaluating and negotiating with a diverse array of partners over infrastructure to the remote development.

They include Baowu, China’s largest steelmaker, the Winning Consortium and the Guinean Government.

Simandou has been stuck in development hell for years, but containing almost a combined 3.8Bt of iron ore resources at upwards of 65% Fe, it could bring tens of millions of tonnes a year into the seaborne market from the latter half of the decade.

It has long been suggested as a way for China to diversify away from Australian iron ore, though the project has been dogged by corruption, infighting and a volatile iron ore market which has stalled investment.

Also at issue is the billions it will take to build over 600km of rail and a new deepwater port to overcome Guinea’s mountainous jungle landscape, housing a community of rare chimpanzees that has drawn the attention of NGOs.

Still Rio seems more positive than ever that Simandou can be developed after signing a non-binding term sheet on infrastructure development with its myriad parties.

“The term sheet further establishes the co-development principles following the incorporation of La Compagnie du TransGuinéen on 27 July 2022, and is a pivotal next step towards securing the shareholder agreement, cost estimates and regulatory authority approvals necessary to progress the co-development of rail and port facilities,” Rio said in yesterday’s quarterly.

“Progress was also made on enabling works at Rio Tinto Simfer blocks 3 and 4 and the projected rail spur connection line. We also progressed land access agreements with communities and upgrade works to camp facilities.

“The award of contracts for key work packages continued in the quarter, including the major package tender evaluations for bulk earthworks and mine process plant equipment.”

The development of that infrastructure could open doors for others.

Or at least that will be the hope at Arrow Minerals (ASX:AMD), a gold junior which moved into the Guinea iron ore market last year by acquiring tenements to Simandou’s north.

Its first mapping program has delivered positive results with iron bearing formations spatially related to aeromagnetic geophysical survey highs identified and siliceous haematite, goethite-haematite and haematite rich canga lithologies mapped in outcrop by field geologists.

The results pave the way for drilling at Simandou North.

“We have mapped the units over a considerable extent of the project area. Next step is to integrate this latest geological information with the reprocessed geophysics to define our first round of drill targets,” AMD managing director Hugh Bresser said.

Bresser says the US$15b development of the mine and 670km railway line from the Simandou Ranges to a new port at Morebaya could open up Simandou North if exploration proves successful.

“The continued combined commitment between Government and Industry to implement this major capital project provides confidence to Arrow that the infrastructure will be present to enable Arrow to potentially establish itself as a major West African mining company,” he said.

“Simandou North Iron Project allows Arrow to participate in the development of an area where, until now, mineral wealth has been locked up due to infrastructural constraints.”

 

ASX iron ore stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.025 0% 0% -46% -54% $ 11,650,682.08
ADY Admiralty Resources. 0.007 -13% -13% -42% -46% $ 9,125,054.07
AKO Akora Resources 0.165 -8% -15% -8% -37% $ 11,911,384.65
BCK Brockman Mining Ltd 0.022 0% -4% -42% -56% $ 204,165,106.88
BHP BHP Group Limited 49.14 2% 8% 36% 18% $ 251,720,623,427.64
CIA Champion Iron Ltd 7.31 -5% 5% 58% 16% $ 3,884,120,376.26
CZR CZR Resources Ltd 0.23 5% -2% -13% 73% $ 52,712,974.08
DRE Dreadnought Resources Ltd 0.097 -1% 7% 111% 137% $ 305,883,093.78
EFE Eastern Resources 0.018 -33% -36% -28% -78% $ 20,906,441.42
CUF Cufe Ltd 0.018 29% 24% -18% -54% $ 15,457,797.84
FEX Fenix Resources Ltd 0.255 2% 4% -14% -12% $ 148,847,049.60
FMG Fortescue Metals Grp 22.03 2% 9% 35% 3% $ 68,753,286,618.94
FMS Flinders Mines Ltd 0.45 5% 18% -4% -20% $ 75,137,616.77
GEN Genmin 0.195 0% -9% -9% -25% $ 62,943,630.75
GRR Grange Resources. 0.95 5% 10% -16% 13% $ 1,139,978,617.53
GWR GWR Group Ltd 0.063 19% 0% -48% -67% $ 19,915,432.61
HAV Havilah Resources 0.365 18% 12% 49% 74% $ 115,573,311.65
HAW Hawthorn Resources 0.11 -12% 0% 36% 0% $ 36,851,717.43
HIO Hawsons Iron Ltd 0.095 -4% -1% -78% -61% $ 85,336,318.94
IRD Iron Road Ltd 0.115 5% -8% -23% -36% $ 88,266,888.60
JNO Juno 0.1 11% 15% -20% -17% $ 13,565,800.10
LCY Legacy Iron Ore 0.018 0% -3% 0% -22% $ 115,322,871.58
MAG Magmatic Resrce Ltd 0.096 7% 16% 33% -4% $ 27,759,830.21
MDX Mindax Limited 0.059 0% 0% 0% 64% $ 115,533,663.12
MGT Magnetite Mines 0.51 -6% -22% -54% -75% $ 38,677,486.59
MGU Magnum Mining & Exp 0.026 13% 37% -32% -72% $ 19,456,597.13
MGX Mount Gibson Iron 0.635 25% 23% 35% 35% $ 783,300,469.79
MIN Mineral Resources. 87.4 2% 8% 101% 33% $ 16,778,476,323.00
MIO Macarthur Minerals 0.15 -14% -12% -12% -58% $ 25,676,290.64
PFE Panteraminerals 0.145 26% 16% 0% -29% $ 7,467,662.40
PLG Pearlgullironlimited 0.03 25% 37% -38% -53% $ 2,110,569.24
RHI Red Hill Minerals 4.3 2% 6% 28% 41% $ 275,737,603.68
RIO Rio Tinto Limited 120.67 2% 5% 29% 9% $ 45,351,484,864.38
RLC Reedy Lagoon Corp. 0.01 0% -9% -47% -75% $ 5,667,196.01
CTN Catalina Resources 0.009 0% 0% 0% -36% $ 11,146,382.03
SRK Strike Resources 0.085 -6% 1% -15% -41% $ 24,970,000.00
SRN Surefire Rescs NL 0.015 25% 25% -32% 36% $ 25,301,815.63
TI1 Tombador Iron 0.028 12% 17% 22% -46% $ 61,972,488.82
TLM Talisman Mining 0.17 0% 26% 26% 0% $ 31,915,714.49
VMS Venture Minerals 0.027 4% 17% -7% -43% $ 49,467,812.58
EQN Equinoxresources 0.135 8% -4% 4% -46% $ 6,075,000.14
AMD Arrow Minerals 0.005 25% 25% 0% -17% $ 11,401,942.92
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Coronado chief bows out

After 11 years in the role Coronado Global Resources (ASX:CRN) chief executive Gerry Spindler will step aside and move to a position as the executive chair of the US-Australian coal miner’s board.

It will see COO Douglas Thompson, formerly a managing director and CEO of CIMIC’s mining contractor Thiess take on the role of CEO as part of a succession plan after CRN’s AGM, sometime around May 25.

Meanwhile CFO Gerhard Ziems will see his role expand to take responsibility for sales and marketing along with strategic investment activity.

It comes not long after CRN failed to reach an agreement on a merger with fellow American coal miner Peabody.

Coronado shares are up 47.14% over the past 12 months, giving the miner a market cap of $3.45b, entering the ASX 200 in June last year.

It saw half year profits swing 685% to US$561.9 million in the first half of 2022 on record realised met coal prices of US$293/t, but saw its share price stagnate through the latter part of the year as coking coal prices fell relative to thermal.

It prompted Spindler to tell analysts and reporters it would switch some met coal sales to thermal because the market was “clearly not rewarding a met coal company for its purity of intent.”

However, met coal prices have been supported by China’s reopening, with hopes of a recovery in global steel demand backing a rebound in coking coal, while a milder than expected northern winter has seen European gas reserves increase and thermal coal demand fall.

“The benchmark Platts premium low-volatile hard coking coal prices, basis FOB Australia, increased $24/mt, or 9%, quarter-on-quarter to $294.50/mt, while PLV CFR China was up $7/mt or 2%, to $315/mt at the end of Q4,” S&P Global reported.

Newcastle thermal coal futures have been trading lower in recent days, with contracts for April delivery now priced at US$284.35, well below recent spot rates of US$370/t.

“The disconnect between met and thermal coal markets could continue in Q1 2023, despite a rising trend of met coal prices narrowing down the price spread between two coals, based on the market survey by S&P Global,” S&P said.

Energy coal spent an unusually large time at a premium to premium hard coking coal last year.

Another question is whether coal volumes recover, as predicted by Goldman Sachs last week.

According to Argus, coal exports from four key terminals in Queensland fell 3.2% to their lowest level in 10 years in 2022 as wet weather hampered east coast coal supplies, compounding shortages from elsewhere and the impact of the Russian war in Ukraine.

However, wet weather has again smashed Queensland’s coal country in recent days, with Mackay receiving heavy rainfall.

 

ASX coal stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.007 0% -13% 17% -30% $ 10,769,241.83
CKA Cokal Ltd 0.21 -2% 5% 31% 40% $ 195,350,663.35
NCZ New Century Resource 0.925 9% -8% -43% -59% $ 119,804,373.78
BCB Bowen Coal Limited 0.33 0% 20% 43% 89% $ 631,645,611.87
SVG Savannah Goldfields 0.17 -11% -3% -15% -37% $ 30,204,726.65
GRX Greenx Metals Ltd 0.85 33% 52% 325% 262% $ 218,113,599.04
AKM Aspire Mining Ltd 0.07 0% -11% -14% -22% $ 37,057,499.91
AVM Advance Metals Ltd 0.009 -10% -10% -10% -47% $ 5,220,396.62
AHQ Allegiance Coal Ltd 0.04 -18% -17% -89% -89% $ 45,220,316.81
YAL Yancoal Aust Ltd 6.25 3% 9% 21% 116% $ 8,279,155,269.99
NHC New Hope Corporation 6.2 -3% 7% 72% 170% $ 5,496,538,841.71
TIG Tigers Realm Coal 0.0165 3% 10% 0% -25% $ 222,133,940.26
SMR Stanmore Resources 3.24 10% 26% 81% 231% $ 2,920,476,701.52
WHC Whitehaven Coal 9.07 -4% -6% 80% 230% $ 8,280,334,855.98
BRL Bathurst Res Ltd. 0.855 1% -2% -16% 15% $ 173,180,600.90
CRN Coronado Global Res 2.05 3% 1% 52% 90% $ 3,487,023,758.40
JAL Jameson Resources 0.09 -1% -25% 29% 23% $ 35,235,999.00
TER Terracom Ltd 1 8% 18% 64% 426% $ 804,971,066.18
ATU Atrum Coal Ltd 0.006 0% -8% 3% -77% $ 8,350,195.03
MCM Mc Mining Ltd 0.305 11% 20% 220% 326% $ 109,362,436.98
DBI Dalrymple Bay 2.48 2% 3% 19% 22% $ 1,229,488,934.16
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