More Taxes for Coal Miners Predicted

BRISBANE, Australia - April 23, 2013 - PRLog -- “I think the big, diversified mining houses will put their Australian development projects on hold and go off and develop elsewhere. Certainly, I wouldn’t be developing anything here right now,” said a Brisbane-based developer now pushing his dollars into Indonesia.

Speaking this week at the Minerals Council of Australia Tax Conference, Queensland Resource Council chief, Michael Roche, warned the coal sector to expect next month’s federal budget to be turning its leery eye on what more can be wrung from the resources sector.

“Somewhere between thin capitalization rules, accelerated depreciation, exploration deductibility and fuel tax credits – a pocket is waiting to be picked,” Roche noted.

Roche was referring to the controversial Minerals Resource Rent Tax (MRRT) which only managed to raise A$126 million in its first two quarters, against full year forecast of A$2 billion in revenue.

Meanwhile despite the general media gleefully pointing out the tax’s failure, Federal Resources and Energy Minister, Martin Ferguson used his farewell speech in March to remark that the tax was actually working the way it was supposed to – by taxing super-profits which come from high commodity prices. (And we certainly don’t have those right now).

In his tax speech, Roche also noted that the current Effective Taxation Rate for a new coal mine in Queensland is 50%, the highest tax rate of all competing jurisdictions with the exception of Indonesia at 50.6%.

“And while paying slightly higher taxes, Indonesia has the distinct competitive advantage of much lower per unit extraction costs as well as a freight cost advantage over Queensland,” he added.

“Under the weight of these numerous external factors, Queensland coal companies are finding it difficult to make the case to globally-focused Boards for further investments here despite forecasts of strong long-term global demand for coal.”

The latest long-term price for Australian thermal coal to Japan was set last week at $95/t FOB for premium quality thermal coal, down $20 from last year’s number. While Queensland is predominantly coking coal country, its thermal coal mines, like those in NSW are now uncomfortably close to the cost curve for a large portion of producers, particularly those with multi-product mines.

An increase in mine closures may be rolled out in the coming months but the enormous difficulty for producers is that the future prospects for demand growth still look strong, lead by India and China.

Sure China is undergoing a government-inspired slowdown but the country is still going to grow, as is India.

So, the question is, when is the right time for a producer to cut production?

Ferguson also said in March: “Many coal mines are now operating for one reason. They are losing less by mining and transporting because of take or pay rail contracts. If they didn’t mine and transport they would be mothballed.”

The producer sources Australian Coal Report (ACR) speaks to confirm this is indeed the case, particularly for mines in the third and fourth quartile of cost.

Some producers tell ACR they are waiting for prices to improve but that if the price remains where it is, despite the extensive cost saving measures introduced across the board, cuts are inevitable.

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