The role of coal

Adam Lancey, Asset President BHP Mitsubishi Alliance (BMA)

As the world changes, so too does the role of coal. BHP produces resources the world needs to decarbonise and develop more sustainably, and we’re proud of our part in the world’s efforts to pursue a lower greenhouse gas (GHG) emission future. This includes bold change in the way we operate, including the introduction of renewable power and working towards the transition of fleets to electrification, as well as aligning our resource mix for the future.

Capitalising on growing demand for critical and other key minerals is becoming increasingly important to support not only the energy transition but also the diversification, growth and future resilience of the Australian economy.

Many of the factors that have set us up for success previously and attracted decades of investment, such as a thriving labour market and a stable investment landscape, are now fundamentally challenging.

With this in mind, the tradition of coal and iron ore underpinning Australia’s prosperity won’t continue, but they still have a huge role to play. Provided the world keeps growing and pursuing decarbonisation, demand for steel will continue, and it is metallurgical coal, or hard coking coal, essential for today’s global steelmaking, which we expect will champion our commodities’ place in the industry for decades to come.

As steel insiders know, metallurgical coal will remain essential to the viability of the global steel industry for the foreseeable future. It’s in the steel required for cars, buses, our household appliances and the schools, hospitals, bridges and technologies needed to accommodate the 200,000 people relocating to cities across the globe, every single day.

Metallurgical coal is also expected to lift its weight in the decarbonisation agenda, helping to supply the steel needed for building transmission lines, wind turbines or electric vehicles. Equally, we expect higher quality coking coals to be valued for reducing the greenhouse gas emission intensity of steelmaking blast furnaces.

As one of Australia’s largest seaborne exporters of metallurgical coal, at BHP Mitsubishi Alliance (BMA) our challenge is to continue producing the coal required to support future construction, infrastructure and the energy transition, while reducing the greenhouse gas emissions footprint of our operations.

We’re proud to be adapting to the changing role of coal and it's also why in October 2023 we announced the signing of sale agreements for BMA’s Blackwater and Daunia mines, in line with our long-term strategy to focus our coal portfolio on our higher-quality metallurgical assets.

Coal’s contribution

In my mind, one of the important roles of coal is the positive contribution to society afforded by its production. The mining sector is the largest contributor to Queensland’s economy, the largest regional employer and the largest export industry in the state. The size of our positive impact is always front of mind for us, and we know it’s our people, partners and local communities that sit at the heart of what we do.

I’m proud to share that last financial year, BMA spent more than $7.9 billion across Queensland with suppliers, and contributed over $5.3 billion in state royalties and other payments to government. In the past decade, BMA’s mining operations have been a major contributor of royalties, paying more than $16.5 billion to the Queensland Government. We also invested more than $13 million in health, education, Indigenous and environmental projects in Queensland. I’m most proud of the real outcomes and benefits of these investments.

As the biggest regional employer in Queensland, BMA’s own team members make up a large portion of our local communities. These are the areas where we have a proven track record of adding value in Central Queensland but they’re also the areas that most concern me when we turn our minds to headwinds facing our industry.

Coal in the arena

As we navigate the critical and other key minerals boom and the changing role of coal, we’re doing so in a time where we won’t be afforded the luxuries we’ve seen in times gone by. Many of the factors that have set us up for success previously and attracted decades of investment, such as a thriving labour market and a stable investment landscape, are now fundamentally challenging.

Firstly, our productivity is at risk with threats to the stability of our investment landscape and the reasonableness of our policy environment.

Aspects of proposed changes to the Australian industrial relations framework under the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 are of particular concern and, like many businesses, we believe they will have a negative impact on Australia’s competitiveness and jobs.

Fundamentally, to be more competitive, we must be more productive and this means investing in people, skills and technology. Policies such as the proposed ‘Same Job Same Pay’ legislation risk doing the opposite.

Narrowing into Queensland, we are also confronted with the Queensland Government’s decision to nearly triple top end royalties, further impacting our position. As I said, the outlook for Queensland’s world-leading metallurgical coal is strong, with anticipated longer-term demand from global steelmakers. However, we are competing with other states, including Western Australia and South Australia, as well as other countries such as Canada and Chile.

The challenge for us as a business –and the industry more broadly – is attractiveness relative to opportunities in other jurisdictions. When returns go down and risks go up, investing in growth gets harder. Secondly, critical mineral resources may come with different challenges to iron ore and metallurgical coal such as being deeper or more remote or individually smaller by scale, which can make them more complex and expensive per tonne to produce – this will affect our entire business.

Finally, the talent pipeline is reducing. Nearly 50% of the world’s skilled engineering workforce will reach retirement age over the next decade, and we’re seeing university enrolments in relevant courses dropping off as the sentiment towards careers in mining declines.

This sharp decline comes despite mining offering some of the highest skilled and paid careers in Australia. Annual apprentice completion is also the lowest it’s been for 23 years, with numbers falling, year-on-year, for the past decade. Coupled with a shrinking talent pool, the cost of labour continues to rise in Australia. To counter this, we need sector-leading productivity.

In order to keep the competitive edge Australia has today our future prosperity, we need to continually adapt and find new ways of doing things in order to improve productivity in this environment. This is on us as a business, but also requires initiatives across industry, and actions in concert with government. Operating in this environment will require us to be more resilient than ever.

All that is to say - as the world seeks to accelerate toward decarbonisation, the BMA coal business proudly owns our place in the global transition to a low GHG emission future and embraces the challenges we face front on so we can continue to contribute for decades to come. 