Coal news and updates

BHP Billiton brings contractors into coal mines to cut costs

BHP Billiton coal president Mike Henry says the dire conditions in the metallurgical coal market could "get more challenging before they get better", as the group said it would replace about 20 per cent of its workforce with contractors at a struggling Queensland coal mine.

BHP is handing control of key mining functions to contractor EDI Downer at its Blackwater metallurgical coal mine in the Bowen Basin in a move that will result in the loss of 306 permanent positions, a fifth of the mine's 1500-strong workforce. Mr Henry said similar changes might be made at other coal sites.

"I am not going to say it will only be Blackwater, we need to assess each case on its own merits," he told The Australian Financial Review. 

But there was no plan to roll out the model across the entire BMA (BHP Billiton Mitsubishi Alliance) coal business.

Mr Henry said there was nothing to suggest the struggling coal market would stabilise in the short to medium term.
Prices drop 25 per cent

Metallurgical coal prices have deteriorated a further 25 per cent since January, to languish around $US83 a tonne.

"You will see some people talk about the fact that the drop in prices is now starting to see an acceleration in the pullback of US tonnes, and some Australian tonnes."

"I look at it and say, 'Well we are starting from a level of 25 to 35 million tonnes of oversupply, it is going to take a lot of volume to be pulled back before we get any semblance of the market being in balance'. I can't see that happening quickly."

"And given what is happening in China, there is some potential that things get more challenging before they get better."

BHP has said each coal mine must be cash-flow positive in its own right.

Blackwater product is among the most marginal in BMA's portfolio, "so it is the first mine to feel pressures when you see oversupplied markets like we do currently", Mr Henry said.

BMA has being trying to bring functions into the purview of direct employment and management in recent years, but Mr Henry said the Blackwater decision "does not signal a change in strategy".

"But we have got no room, or latitude to not take measures that would get us more quickly to the performance we need to have both on productivity and on costs. External market circumstances are such that we just don't have that luxury."

Contractors will be brought in to replace 306 permanent positions at the coal face, for drilling and blasting and pre-stripping.

EDI Downer had said it could do the work at lower cost and guarantee productivity targets would be met, Mr Henry said, while also making commitments on volumes and safety.

The move would "give us greater likelihood" that production at Blackwater did not fall into the red, he said.

"At current prices, every operation needs to be run very tightly, Blackwater more than most, given the nature of its products [lower quality], this is going to help stave off any that sort of [cash-flow negative] scenario".

source: http://www.afr.com