April 10, 2013 / 12:30 AM / 5 years ago

BHP cuts contractor at Australia coal mine to curb costs

SYDNEY, April 10 (Reuters) - BHP Billiton has terminated a contract with Australia’s Leighton Holdings estimated to be worth up to around $270 million two years early as the global miner scrambles to cut costs amid a weak market.

The contract with the Peak Downs coal mine, owned jointly by BHP and Mitsubishi Corp under the BMA Alliance, would cease on July 3, 2013, Leighton said.

BHP said the decision was driven by a company-wide push to reduce costs across its businesses.

Australian coal miners have been hard hit by a downturn in demand for both metallurgical coal used in steel production and thermal coal for power generation. A strong Australian dollar has further exacerbated the situation.

Rio Tinto this month was reported to have hired Deutsche Bank to help sell Australian coal assets worth billions of dollars, as the company seeks to sell off under-performing businesses.

Leighton estimated losing the contract would cost the company a maximum of around A$260 million ($272.55 million).

Under the terms of the contract, Leighton said it was also entitled to compensation for early termination.

“BHP is going to use another contractor, a smaller contractor,” a source familiar with the decision said, requesting anonymity. “They decided for their own reasons that they can probably get a cheaper price by using a small contractor.”($1 = 0.9540 Australian dollars)

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