BHP, Xstrata cutting coal costs, jobs in Australia

September 10, 2012

A combination of weak prices, rising costs and a strong Australian dollar have led BHP Billiton and Xstrata Plc. to cut high-cost coal production in Australia.

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, Reuters reported.

BHP said it was closing its loss-making Gregory Mine, which produced 2.8 Mt (3.1 million st) 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 opencut mine production was no longer profitable in the current economic environment of falling prices, high costs and a strong Australian dollar,” BHP Billiton 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 2.6 Mt 2.35 Mt (2.6 million st) last financial year. The two are among BHP’s smallest coal mines.

At full capacity, the BHP Billiton-Mitsubishi alliance can produce 58 Mt/a (64 million stpy) 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.

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.

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



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