Coal operating costs and asset values, not royalties, should be priorities for BHP’s new CEO in Commodity News 28/03/2026 When BHP announced Brandon Craig as its new CEO, his predecessor Mike Henry was lauded for his strategic vision and, among other strategies, upgrading its coal business. IEEFA’s analysis of BHP’s financial reports highlights that the Queensland coal division has delivered an improved price outcome. This is largely due to reducing the discount BHP incurs on its metallurgical coal sales to the hard coking coal (HCC) market price, from 11% in FY2018-19 to just 1% in FY2025-25. (The reduction reflects improvements in the quality of BHP’s coal.) Despite this, BHP’s latest financial results highlight a continuing decline in financial returns, with an effective zero return on investment. As a result, the mining giant has announced cost-cutting measures, including the closure of its Mackay Skills Academy. BHP blames changes to Queensland’s royalty regime in 2022 for the closure and the company’s declining overall financial performance. IEEFA’s research tells a different story. It found the impact of the expanded price tiers on which Queensland’s coal royalties are calculated (from three to six) was significantly less than that claimed by the industry – analysis which still holds. Meanwhile, BHP’s operating costs have increased, particularly due to regional labour cost pressures. Consequences of coal upgrade strategy BHP’s strategy to upgrade its Queensland coal assets through sales of coal assets held by its BMA joint venture with Mitsubishi has resulted in a significant decline in its equity share of coal sales since FY2015-16 (by almost 60%). However, asset values reported by BHP have only decreased by about 20%. The outcome of this combination is that BHP is maintaining a significantly higher asset value per unit of production, which has increased by 84% over the period. Given that asset values affect depreciation, this would be expected to reduce return on investment rather than operating costs. Operating costs, however, will be affected as fixed operating costs are spread across falling volumes. Operating costs rise substantially IEEFA’s analysis shows BHP’s operating costs have increased significantly since FY2017-18 (Figure 2). While the expanded coal royalty regime has contributed to an increased proportion of the price, it is still only 15%, up from 10% in FY2017-18. This is far exceeded by the 28 percentage point increase in operating costs – the overwhelming driver of BHP’s declining coal earnings, not royalties. The surge in operating costs has left BHP with just 17% of the price to cover depreciation costs and investment return (compared with 50% in 2018). Combined with the 84% increase in asset value per unit of production, a return on investment of close to zero is to be expected. This is not a function of the change to the royalty regime. IEEFA’s analysis therefore finds that the key contributors to the deterioration of BHP’s Queensland coal assets’ financial performance are: Operating cost inflation High asset values per unit of production increasing unit depreciation costs. Changes to the royalty regime do not appear to be a significant contributor, notwithstanding BHP’s (and the coal industry’s) strong opposition to the changes. Private royalty regimes Commercial sales of coalmines often include provisions that could be considered private royalties as they allow for increased payments based on future price