BHP, Xstrata attack coal costs in Australia; jobs to go

MELBOURNE Mon Sep 10, 2012 1:22am EDT

MELBOURNE (Reuters) - Top global miners BHP Billiton and Xstrata Plc are cutting high-cost coal production in Australia as they battle weak prices, rising costs and a strong Australian dollar, adding to worries that Australia's mining boom is fading.

Both BHP and Xstrata signaled that further cuts could be on the way as they continue to look for ways to chop operating costs, putting more jobs at risk.

The two companies are Australia's top coking coal and thermal coal exporters respectively, and their cuts should help shore up coal prices, which have tumbled 25 percent from this year's peak, and may shield other miners from having to pare output.

"What we saw in 2008 and 2009, unlike the previous 30 years, was the bigger players were willing to cut, cut quickly and cut savagely. It looks like we're seeing that again," said Andrew Harrington, an analyst at Patersons Securities. "The smaller players have less room to move and are probably happy to watch the bigger players cut production."

BHP said it was closing its loss-making Gregory mine, which produced 2.8 million tonnes of coking coal in the year to June, and would try to move the 297 staff and contractors to its other mines run under a BHP Billiton-Mitsubishi alliance.

"The decision follows a continuing operational review of the Gregory Crinum operations, which determined that the Gregory open-cut mine production was no longer profitable in the current economic environment of falling prices, high costs and a strong Australian dollar," it said in a statement.

The Gregory mine is the second coal mine to be shut by BHP, following the closure in April of the loss-making Norwich Park mine, which produced 2.35 million tonnes last financial year. The two are among BHP's smallest coal mines.

At full capacity, the BHP Billiton-Mitsubishi alliance can produce 58 million tonnes a year of coal used in steel-making, or about a fifth of annual global trade. Last year, their mines were hit by strikes, which slashed output to less than a third of capacity.

JOB CUTS

Xstrata said separately it was cutting around 600 jobs, or 6 percent of its Australian coal workforce, including permanent staff and contractors, and would focus on curbing high-cost production at some of its 12 Australian mines. It declined to name which mines would be affected.

Xstrata, the subject of a takeover offer from its biggest shareholder, Glencore International Plc, said the cuts would not affect its production volumes materially nor affect its approved projects.

BHP shares rose 1.3 percent to A$32.40, while smaller coal producers posted bigger gains, with Yancoal up 5.5 percent, New Hope Coal up 1.9 percent and Cockatoo Coal up 4.2 percent.

The moves by BHP and Xstrata come on the heels of No.3 iron ore miner Fortescue Metals Group's move to cut more than 1,000 jobs due to a slump in iron ore prices, and follows BHP's decision to defer more than $40 billion in projects, including a coking coal expansion.

"The speed at which companies are willing to react is much greater than it ever was," Harrington said.

Xstrata said its Ravensworth North, Ulan West and Rolleston expansion projects were continuing and remained on budget and on schedule.

Analysts have predicted Xstrata will delay its landmark Wandoan project, estimated at $6 billion and which would be Australia's biggest coal mine with a capacity of 22 million tonnes a year, due to the uncertain outlook for coal demand and rising capital costs.

"Feasibility studies into our Wandoan Project continue, to enable an investment decision once relevant approvals have been completed and market conditions permit," the company said.

(Reporting by Sonali Paul; Editing by John Mair and Ian Geoghegan)

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