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Coal royalty shock 'overdone' as investors reap the benefits of crazy prices

Business

The massive hike in Queensland coal royalties cost investors millions as share prices plunged, but in some cases analysts said it was a “dramatic overreaction” and shareholders were reaping the benefits of “crazily high” coal prices.

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While companies have warned of a reduction in jobs and investments since the royalty hike was announced, company share prices in the major coal producers have recovered their losses.

Morgans broker Tom Sartor said Queensland coal producer Stanmore would lose 20 cents a share in its valuation because of the royalties so the huge drop in its share price after the Budget announcement “looks like a dramatic overreaction”.

The company’s share price dropped by 27 per cent when the royalties hike was announced which Sartor said “looked like a panic”.

“Windfall royalties only get incurred as a function of windfall revenues,” Sartor said.

It expected Stanmore to pay an additional $US146 million in royalties because of the hike but it also has a 12-month price target for Stanmore of $3.35.

Terracom, which owns the Blair Athol mine in central Queensland, has received a huge boost from Evolution Capital which out a price target of $1.45 on the stock. That helped boost its price yesterday with a 4 per cent jump to 62 cents. However, the price target is down on the $1.70 Evolution forecast in March.

“On our numbers the increase in the Queensland royalty does have a significant impact on revenues and share price, however this more than offset by the increase in revenues generated by the company,” Evolution said.

Evolution said the impact on Terracom equated to about $289 million over the life of the Blair Athol mine.

The share prices of Terracom, Stanmore, Bowen Coking Coal and New Hope have increased since the royalty hike in the State Budget on June 21. However, Stanmore was at $2.75 at the start of June when speculation of a royalty hike began and it was now about $1.90.

Economist Gene Tunny today said coal had been a major factor in a massive hike in Queensland economy.

He cited Treasury’s statements in the Budget indicated a 22 per cent increase in the state economy last financial year.

“Queensland’s gross state product was nearly $450 billion in nominal dollar terms in 2021-2022, an increase of around $80 billion, largely due to the crazily high coal prices,” he said.

In real terms, which adjust for the price surge in coal, the economy only increased by 3 per cent.

“A lot of the additional gross state product will have gone to mining companies as profits to be shared among domestic and foreign shareholders,” Tunny said.

“That said, in 2021-2022 the State Government received $9 billion in royalty revenue compared with the original forecast of $3 billion and mining workers have benefitted too with reported of higher wages and sign-on bonuses.”

 

 

 

 

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