MELBOURNE, Australia--BHP Billiton Ltd. (BHP) has scrapped a
contract with Downer EDI Ltd. (DOW.AU) to clear ground at its
Goonyella Riverside mine in eastern Australia as part of a wider
effort to slash costs its Australian coal operation.
Ending the contract for so-called pre-strip work on land around
the existing mine means axing around 427 contractors. BHP said the
measure was needed to ensure the ongoing viability of its coal
business.
Resource-rich Australia is facing a sharp slowdown in mining
investment as a decadelong resources boom fades. Thousands of jobs
have been cut across the industry, particularly in mining-focused
states such as Queensland and Western Australia, prompting the
central bank to cut interest rates to a record low to support other
parts of the economy.
After many years of soaring prices for Australian metals and
minerals, a surge in supplies coupled with a cooling in China's
economic growth, has weighed on prices.
Downer said the early end to the contract on Sept. 9 would
reduce the value of work-in-hand for the company by about 360
million Australian dollars (US$337 million) over the 2015 and 2016
financial years. It said that under the terms of the contract, it
would be entitled to compensation.
BHP and venture partner Mitsubishi Corp. operate seven mines in
the coal-rich Bowen Basin of Queensland state, including the
open-pit Goonyella Riverside mine. BHP operates other coal mines in
the state, as well as to the south in New South Wales. It closed
its loss-making Norwich Park and Gregory mines in Queensland in
2012.
Dean Dalla Vale, president of BHP's coal division, said the
termination of the contract with Downer continued cost-cutting
measures underway for more than 18 months.
"Further measures to address wage and other costs are being
undertaken at all mines in Queensland and New South Wales as we
continue our detailed reviews of every aspect of our coal
operations to ensure every operation remains operating cash
positive," he said.
Prices for steelmaking coal have slumped by half since the start
of 2012 to around US$110 a ton, the lowest level in seven years.
BHP, like its peers, has vowed to slash costs and curtail spending
across the company, prompting it to defer major projects and cut
jobs.
"The coal industry is undergoing a difficult transition and to
be globally competitive we have to reset the cost base of the
business," Mr. Dalla Vale said. "Coal producers face challenging
decisions."
Write to Robb M. Stewart at robb.stewart@wsj.com
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