April 11, 2012 / 6:37 AM / in 6 years

UPDATE 1-BHP to close money-losing coal mine in Queensland

By James Regan

SYDNEY, April 11 (Reuters) - The world’s biggest miner BHP Billiton BLT.L> said on Wednesday it will cease production at a loss-making coal mine in northeast Australia, citing low output, high costs and soft coal prices.

“Norwich Park mine has been losing money for several months,” BHP said, adding that it would try to redeploy as many as possible of the mine’s some 1,400 workers.

The move comes a year after massive flooding devastated coal mining in the Bowen Basin of Queensland state, followed by crippling rolling industrial action.

Norwich Park, yielding metallurgical coal used in steelmaking, is one of the smallest of six mines in Queensland operated under a 50-50 partnership between BHP and Japanese trading house Mitsubishi Corp.

In the six months to Dec. 31 a total of 734,000 tonnes of coal was mined from Norwich Park, BHP data shows. Newer figures on the mine are due to be released with BHP’s quarterly production report on April 18.

In total, mines operated under the partnership have an output capacity of more than 58 million tonnes a year, representing about a fifth of annual global trade in metallurgical coal.

The Norwich Park mine was first worked in 1979 and is regarded as comparatively costly to operate, given the geology of the lode.

Industrial action at the mine contributed to lower production, as did heavy flooding across Queensland’s coal pits in 2011, according to BHP.

“As a result, we have had to take urgent steps to both stop the losses and find the best way to secure the operation’s long-term future,” BHP said.

Efforts would be made to “maximise redeployment opportunities” for workers at the mine to the nearby Saraji mine, it said.

“This is a kick in the guts for our workers,” said Stephen Smyth, president of the Construction, Forestry, Mining and Energy Union (CFMEU), adding that the union had no prior indication from the owners that operations would cease.

Union leaders were due to meet with management of the mine on Thursday to discuss the redeployment of workers, Smyth said.

Unions led by the CFMEU have been staging rolling work stoppages across the six mines since June 2011.

The Norwich Park mine employs 490 workers directly and 900 as outside contractors, according to a BHP spokeswoman.

BHP-Mitsubishi mines including Norwich were earmarked by unions last week for a two-day work stoppage starting on April 12 over stalled negotiations on a new work contract. Smyth said those actions would still take place.

BHP earlier this month declared force majeure on deliveries from the predominantly metallurgical coal mines in the Bowen Basin, citing long-running labour stoppages compounded by heavy rains that have impeded production runs.

Force majeure is a legal clause relieving companies of immediate supply obligations due to circumstances beyond their control.

UBS has estimated that the strikes and heavy rains have resulted in lost production of 2 to 3 million tonnes across the six mines this year.

Prices of metallurgical coal have weakened in recent months but are still more than twice as high as estimated production costs at the mines of around $80 per tonne, according to analysts.

The decision to cease production came after a seven-week review that failed to identify any immediate remedies to turn the mine around, according to the company.

“Until we find viable solutions for the future of the mine, we will not restart operations,” BHP said.

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