Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Coal companies sink as Queensland ups royalties
Three new tiers will be added to Queensland’s coal royalty structure from July 1 as the Palaszczuk government attempts to take a bigger slice of the recent spike in coal prices.
The new structure will include a 20 per cent royalty for an average price above $175 a tonne, a rate of 30 per cent on the average price above A$225 and a rate of 40 per cent on the average price above $300.
Budget papers forecast the new revenue stream will add an additional $1.2 billion over the next four years to support the 2022 budget, which includes sizeable investments in health and infrastructure.
Subsequently, the share prices of coal companies with operations in Queensland took a tumble.
Stanmore Resources (ASX: SMR) fell 9.8 per cent, Terracom (ASX: TER) dropped 15.4 per cent and Coronado Global Resources (ASX: CRN) was off by 6.9 per cent.
The worst performer was Bowen Coking Coal (ASX: BCB) which plunged 39.1 per cent, given all of its exploration is located in Queensland.
While the industry knew royalty hikes were inevitable after a ten-year freeze, it doesn’t make it much easier to swallow. Clearly, the market took the new structure by surprise.
Queensland Resources Council CEO Ian Macfarlane said the new tiers were a short-term political move to fix a hole in the budget:
“This decision from the government will have a flow-on effect on the cost of living through higher electricity prices, higher construction costs and higher-priced consumer goods that will add to inflation and impact every Queenslander,”
The Government says the new tiers are designed to ensure Queenslanders are fully compensated for the state’s limited and valuable resources.
Coal prices have soared over the past year as conflict in Ukraine, weather disruptions and site closures limited global supply. Furthermore strong demand from China from exporters outside of Australia has temporarily distorted market prices.
Average coking coal prices are up 221 per cent over the past year. Meanwhile, thermal coal prices are up over 260 per cent since 2020.
The existing structure already includes 7 per cent applied to a value of up to $100 per tonne, 12.5 per cent to values up to $150 per tonne, and 15 per cent to values above $150 per tonne.
The royalty will be applied at the margin. For example, an average selling price of $250 will be taxed as 7 per cent for $100, 12.5 per cent for $50, 15 per cent for $25, 20 per cent for $50 and 30 per cent for $25.
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