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Queensland offers royalty discount to kick start development

While higher iron ore prices are driving Western Australia miners to expand production, and development work marches on towards the beginning of the Queensland LNG export industry, the coal miners aren’t feeling much love these days.

Anglo American (FTSE: AAL) announced this month that 200 jobs will be lost at its Dawson mine near Moura, QLD, which the company said was brought on by lower coal spot prices. This just adds to the estimated 8,000 other coal industry-related jobs lost since May 2012.

Thermal coal prices are around $83/tonne, way off from the January 2011 high of around $142/tonne.

To spur on development in more mining, the QLD government has proposed a discount in the resource royalty rates for companies developing and operating in the Galilee Basin in west-central QLD.

The mining potential is great, yet being so far inland, a great amount of infrastructure development is also required, such as freight lines to take ore to ports like Bowen on the eastern seaboard.

Major companies in the basin region are Hancock Coal, part-owned by Hancock Prospecting and the Indian company GVK, Waratah Coal, which is led by Clive Palmer, and Adani, an energy company in India.

The Queensland Resources Council responded to the state’s offer by saying that the royalty discount should be applied to all new mining operations across the state.

BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) have major coal operations in the state, and they also have been scaling back work, as well as closing mines that had inadequate earnings. They, too, could benefit from a state-wide royalty discount for new sites.

The QLD government is also streamlining its development approvals process to show it is serious about moving these big projects forward.

Foolish takeaway

My view at this time is that biggest beneficiaries of development in the Galillee Basin will be the companies that will eventually haul coal to the ports. The train lines will be 100s of kilometres long and very attractive to the rail transporters Aurizon (ASX: AZJ), the former QR National, and Asciano (ASX: AIO), which has been moving to extend its rail business into QLD from New South Wales, where it has market dominance. They both will be wanting to add new lines to their networks, and enjoy monopoly-like advantages on the lines they control.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.