Mining News — BHP’s Labor Disputes Are Likely To Hit Bottom Lines Hard

It was reported by Proactive Research that the impact from labor diputes will affect operating costs for some of BHP’s coal mines in Australia.

The issues of this case revolve around the Fair Work Legislation Amendment Bill introduced by the Albanese Government to ensure equal pay and working conditions for employees at BHP’s coal mines in Queensland.

BHP in turn has sought to have the bill’s proposal changed to meet current obligations facing BHP and the mining industry in Australia.

For example, BHP Minerals Australia president Geraldine Slattery stated:

“We remain deeply concerned that this bill will create further uncertainty and complexity for no gain in productivity, reduce the ability of Australian industry to successfully compete in the global arena and ultimately increase costs for businesses and consumers at a time of already high inflation.”

One of the main proponents of the this legislation are powerful unions in Australia, such as the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU). The union used their legal capabilities to target BHP’s action toward employees on Christmas Day and Boxing Day in 2019.

There was a crucial deadline earlier this year in the lead up to these national holidays in Australia and Canada, since BHP Group was under pressure after losing a court decision over this labor dispute, where a judge ruled that the miner must engage with employees before requiring them to work during holidays.

According to Michael Michalandos, industrial relations and employment lawyer for Baker and McKenzie, the legislation in the Fair Work Act clearly sets the tone for how employers should engage with employees about working during public holidays. He told reporters:

“The court made it quite clear that employers have to notify employees that they do have the option to either accept or reject a request to work on a public holiday.”

Nevertheless, BHP won the initial labor dispute against the CFMMEU based on what the miner argued were obligations by the employees to fulfill their permanent jobs statuses in Australia. CFMMEU filed for an appeal against this decision.

At the same time, a spat over coal royalites is playing out between the world’s largest miner, BHP Group, and the Australian government. This case about coal royalities is about mining prospects in Queensland, New South Wales (NSW), Australia. It’s an extensive story, so I will only introduce the most relevant actors and how their interests are at stake.

According to the Queensland Resources Council (QRC), the latest regulations put forth by the Queensland government to increase taxes on coal mining royalties in NSW has put a major amount of coal mining investments at risk for Australia’s economy. Speaking officially on the matter, Ian Macfarlane of the QRC called the new regulations on Queensland coal royalties “over-taxed and uncompetitive”, noting that investments of up to $103 billion-$142 billion in coal mining could be affected if the regulations stands.

The Queensland government has attributed their decision to increase taxes on coal mining royalties — also known as carbon exports windfall-profits tax (CEWT) — to commodity prices being driven to dangerously high prices as a result of the Russia-Ukraine conflict.

In defense of Australia’s treasury office, Director of the Climate Energy Finance Tim Buckley said that the regulations were set up with the Australian people in mind, which would avoid the possibility of a Pandora’s box scenario for corporate interests to supersede effects to the standards of living on Australians.

Here’s what Buckley said about the regulations in a report covering CEWT: “It’s not a windfall gain that [miners] had anything to do with…It was entirely due to war profiteering using public assets…It’s a sort of Pandora’s box that opens up.”

Other government officials of NSW came out in staunch support of the coal royalty taxe rate increases, such as the Greens MP Sue Higginson, who basically said that the Australian government was not doing enough to combat corporate interests as the profits from coal mining and other commodity-based investments from corporations are skyrocketing.

For example, she asserted that “once again allowing the profits from fossil fuels to slip through their fingers…We should be increasing royalties right now, commensurate with record prices, then we could use those profits to escalate investment in renewable energy projects that would save us from being at the mercy of instability in the global fossil fuel market.”

It has been confirmed by several sources that BHP Group has decided to stop coal production investments at its Queensland operations in response to this new regulation targeting coal royalties. The QRC has defended BHP Group’s stance in lockstep with the alleged devestation it would be causing to Australia’s economy. The world’s largest miner even announced on 21 Feburary 2023 that it would sale two of its mining operations for mettalurgical coal at Daunia and Blackwater in Queensland.

The Daunia and Blackwater mines are part of the Bowen Basin where the BHP Mitsubishi Alliance (BMA) has joint-stakes is several coal mining operations. Without citing anything about the coal royalty tax rates, BMA asset president Mauro Neves declared that the decision by the alliance to sale off the mines were based on a strategic focus to elevate its interests in higher quality coal assets with lower emissions.

This didn’t convince the QRC’s Macfarlane, indicating that, “the two mines would struggle to compete for capital under its current global investment plans, which is why the Queensland government should be doing whatever it can to attract investors, not scare them off with the world’s highest royalty tax rate.”

The BMA’s decision also got the attention of Mining and Energy Union Queensland president Stephen Smyth. He called on BHP Group to avoid any “cut and leave” scenarios which would cause Queensland communities to suffer from the company’s failure to continue its operations.

The uptick in coal production activities caused United Nations Secretary-General Antonio Guterres to come out in opposition to coal’s big comeback on international markets in August 2022. Meanwhile, coal producers argued that thermal coal is in high demand around the world since it is a cheap and reliable source of power generation in countries that are struggling to meet its domestic elecricity demand.

It was also repoted in gCapitan that declining volumes of cargo traffic through the Port of Rotterdam were being offset by a rise in LNG and coal supplies through the port, since coal and LNG were largely going to Europe making up for the loss of Russian energy exports. According to Chief Executive Allard Castelein, “The total volume makes it seem as if it is business as usual in the port, but the big changes, especially with respect to LNG and coal, indicate that the energy landscape has changed dramatically.”

This trend led to Denmark producer Orsted to restart coal operations in October 2022 amid a crisis for European energy supplies before the winter 2022/23 season.

Coal is still being viewed as a viable fossil fuel for industrial production in the global economy, in addition to a reliable domestic source of energy power generation. For example, it was announced during the G-20 Summit in Bali, Indonesia, that coal production from G-20 countries had attracted $20 billion in government-supported investments for energy supplies in 2021.

Writing for Eco-Business (of Reuters) Robin Hicks analyzed how important the decarbonization focus has become in South East Asia. In the article, Hicks write that Indonesia’s industrial sector is being overlooked as one of the region’s largest greenhouse gas (GHG) emitters. According to this analysis, more efforts should be put forth by international companies and the global community to decarbonize industrial production in Indonesia.

As a way to lead a greater effort for the entire Southeast Asia region, both ExxonMobil and Chevron announced plans to expand into the Carbon Capture and Storage (CCS) markets with new projects to live up to commitments they have made on getting to Net Zero. Thailand’s PTTEP also announced the country’s first CCS project.

In fact, Exxonmobil and Chevron serve as fantastic examples to explain how vital industry and government collaborations are for a successful energy transition. The two supermajors are both working with Indonesia’s PT Pertima to find adequate solutions for lower-carbon emissions production through carbon capture utilization and storage (CCUS) and promote energy security and independence in Indonesia. Exxon has even proposed building an ASEAN carbon capture network that will connect the entire region with low carbon energy solution to industrial production.

I will further illustrate by looking at one of Australia’s biggest energy companies: Woodside Energy.

This company has went under the radar, and I don’t know why. Because they landed one of the biggest deals in the energy sector during a time when all of the attention has been focused on energy demand and security.

In November 2021, the Perth-based Woodside Energy announced its FID on the Scarborough offshore gas project in Western Australia. This deal was finalized after the company successfully acquired BHP Group’s petroleum division of the project through a binding share sale agreement to merge with BHP’s oil and gas venture in the Scarborough gas field. According to a report by Energy Flux, this merger will create the largest company in Australia in terms of market capitalisation at A$41 billion.

Australia was the world’s largest LNG exporter in 2021 when revenues hit $35.3 billion in 2021. This was due to China’s rise as the world’s largest importer, of which 31.6 million tonnes of the country’s LNG imports came from Australia.

At a time when Australia’s market share over LNG exports is projected to start declining vis-a-vis Qatar and United States, Woodside Energy dominated LNG production in 2023. According to The Sydney Morning Herald, Woodside made more than $1 million an hour in profits due to the rising demand for natural gas. It also reported that Woodside made $6.50 billion in net profits for the year of 2022, since the BHP merger was taken into account.

Legal disputes over labor laws, meanwhile, are revealing how critical some of the world biggest producers’ mining projects in Australia are to future bottom lines. Not only BHP Group, but also Chevron who is battling workers’ strikes at the company’s LNG facilities.

The issues around areas of production investments and the dilemmas facing producers in the global energy demand scenarios are critical to geopolitical trends in the global economy at present. But what does this mean for future industrial policies?

One way to successfully track the company’s progress on Environment, Social, Governance (ESG) frameworks, would be to look at how those investments in Energy Transition and Clean Energy Technologies are being spread out for domestic production versus other global energy production investments.

These diverging and converging scenarios around Coal, LNG and clean energy technologies, will put into perspective for how the oil and gas industry is reponding to geopolitical trends, windfall taxes and US-China LNG scenarios.

Joshua Mayfield works as a legal analyst and language consultant in Mandarin Chinese, French, and Russian. His international relations research background is in U.S.-Australia relations and the Indo-Pacific strategy. He holds a master’s degree in law from Shanghai’s East China Normal University, specializing in China studies. He manages a publication on Medium entitled, Areas & Producers, covering global markets, advanced technologies, and the latest news stories in international business, finance, law, and politics.