Mining royalties bonanza divides Queensland

Queensland's coal mining industry is reeling from being whacked with big royalty increases in the State Budget.

The rate for coal over the value of a $100 a tonne jumped from 7 percent to 10 percent.

Treasurer Andrew Fraser is confident an extra $580 million in revenue will be raked in this year, or $1.6 billion over four years.

The royalties from coal in the next financial year will total $3.2 billion.

Premier Anna Bligh argued the miners could complain all they like, but they would take the hit in their stride.

"This is an industry doing extremely well at the moment," she said.

"Frankly the coal companies have never been better placed to make a return to the people of Queensland."

"It's a smash and grab raid," Queensland Resources Council chief Michael Roche howled.

"So that says a lot about the budget difficulties the government is facing.”

Days later Mr Roche was left reeling again when the Bligh Government made it clear it would include precious and base metals in the increased royalty grab from 2011.

Mr Roche slammed the lack of consultation over both increases.

"This is the sort of thing you might expect in an African country with a budget problem," he told the Australian Financial Review.

Ominously, mining companies are now redoing their sums on future projects. Some warn this could threaten future investment growth.

Increased royalty payments will cost BHP Billiton about $100 million next year.

Not bothered yet are the big LNG companies.

However treasury mandarins are rubbing their hands with glee over the prospect of an LNG business of "almost unimaginable scale” originating in south-west Queensland.

That will mean another royalties bonanza in just a few years.

When Santos perfects converting coal seam methane gas to LNG on a large export scale from its existing gas fields around Roma, hundreds of millions of dollars will flow into treasury coffers.

"This is an absolute world first," an upbeat Santos CEO David Knox told journalists.

He had just revealed his company had joined with Malaysias Petronas — the third largest LNG producer in the world — for a $7.7 billion project.

Sand-gropers be warned: Queensland is set to outpace the North-West Shelf with its 12 million tonnes.

"What we're envisaging here in Queensland on Curtis Island (site of the new LNG processing plant for the Santos/Petronas project) is very much a project that is of North-West Shelf-type scale,” Mr Knox said.

“And depending on the ultimate size of the resource it could go beyond.”

And it's the size of the coal seam gas resource in Queensland which is attracting worldwide interest, as big players rush to sign on with other gas companies working towards the same end.

Mr Knox said: "ABARE has said there's 250 TCF of gas in eastern Australia. Now to get a project such as ours, we're talking about 3 million tonnes — [which is] about four or five TCF — and there's 250 [TCF] potentially. This has the potential to be a giant business.

"Whether there's 250 [TCF] still has to be proven. Right now our proven resources are much smaller than that. But ultimately this could be a business of almost unimaginable scale."

A lot of drilling will be done to make the Santos project possible by 2014. Up to 1000 wells will need to operational. The spin-off effects for job growth and the Queensland economy are impressive.

Mr Knox admitted there was a race on to have the first LNG plant up and running in Gladstone. However, he agreed there was room for more than one given the resource potential.

With a mining and infrastructure boom well underway ($107 billion in infrastructure in the south east corner alone in the next twenty years), capable workers are needed desperately.

With an eye on luring them north, the Budget introduced sweeping changes to the stamp duty regime.

First-home buyers purchasing a property worth up to $500,000 will not pay a cent in duty.

And for homes worth up to $1 million, Queenslanders will pay the lowest stamp duty in the country. Mortgage duty will be abolished from July.

Struggling first-home buyers and workers considering a move north can now save $9800 on a $500,000 home.

And with an election looming next year, Treasurer Fraser expects the 08/09 budget will be back in the black with a surplus of around $800 million.

The Opposition has made much of interest payments on state borrowings for badly needed roads, rail lines and ports.

It took out full-page newspaper advertisements the day after the budget to hammer its point.

While the interest expense on the 08/09 Budget is just 1.5 percent, Mr Fraser said this would grow “modestly" to 2.4 percent in a few years.

"Every business I know — every family I know — would love to have an interest expense of just 1.5 percent of revenue,' he said.

In fact, the Queensland Property Council said Mr Fraser should have borrowed more.

Queensland’s growth is expected to be four-and-a-quarter percent this year, making it one-and-a-quarter percent higher than Australia's economic growth forecast.