Coal price fall forces job cuts, says BHP Billiton boss Dean Dalla Valle

BHP is taking the axe to costs.

BHP is taking the axe to costs.

BHP is taking the axe to costs.

BHP Billiton coal boss Dean Dalla Valle says the miner’s decision to cut 700 workers across its Queensland metallurgical coal business is a reaction to dramatic price falls for the commodity and the high cost of operating in Australia.

“When we started looking at cost restructuring we were around $US150 ($168) a tonne, coming down from $US200, and now we are down around $US110,” Mr Dalla Valle said.

“And we’ve had a pretty sticky forex rate in this country. This all follows a period of pretty inflationary cost growth over the past four or five years.”

Metallurgical coal was fetching more than $US300 a tonne in the boom days of mid-2011.

BHP, the world’s largest exporter of seaborne metallurgical coal, is making the fresh round of cuts as part of an ongoing review of its coal division.

It continues to take an axe to costs in an attempt to push every operation to function independently in the black.

“It comes back to the world sets our price but Australia sets our costs so we’ve just got to make sure we are matching them up,” Mr Dalla Valle told Fairfax Media.

Despite the cuts, BHP was sticking to guidance to lift metallurgical coal output by 4 per cent to a record 47 million tonnes in financial 2015.

Mr Dalla Valle says there is much more pain to come for the industry.

Up to another 25 million tonnes of metallurgical coal could drop out of the market globally as the industry undergoes a shake-out, he says.

“We’ve probably seen one million to two million tonnes come out of the market on a monthly basis, you’ve got to think we’ve got another 12 months or so of this,” Mr Dalla Valle said.

“We have minimum 12 to 18 months before it shakes itself out. Everyone is just sitting there waiting for someone to blink.”

Last week Anglo American chief Mark Cutifani said he expected metallurgical coal mines will be mothballed at a rate of one every two or three weeks until up to 50 million tonnes had fallen out of the market.

On Monday night, coal explorer and former market darling Bandanna Energy collapsed, with land costs attached to the development of its Queensland thermal coal project proving too much for the junior.

BHP’s round of 700 job cuts, announced on Tuesday, will be made across its Queensland coal business, the BHP Mitsubishi Alliance (BMA). About 560 of the jobs to go will be operational.

BHP has identified the jobs in the firing line but has not disclosed the breakdown across its fleet of seven Bowen Basin mines.

The miner will spend the next few months negotiating the cuts and will likely be open to taking some voluntary redundancies.

BHP owns 50 per cent of BMA, with Japanese manufacturer Mitsubishi holding the other half. The business employs about 6000 staff full-time and 5000 contractors.

BHP would not rule out further job cuts.

When asked if BMA’s fleet of mines was cash flow positive, Mr Dalla Valle said: “We will take action as necessary to make sure the mines remain profitable.

“Ultimately we have closed mines which we can’t make profitable.”

He said the miner would push on with its strategy to chase record production.

“Some people criticise us for putting more tonnes out but for us that makes sense for helping us reduce our fixed cost base for our businesses,” he said.

“So it is the right thing to do.”

About 13,000 jobs have been cut from the sector over the past two years amid mine closures and delays to projects by companies ­including BHP, Rio, Glencore, Vale and Peabody Energy.

BHP cut 173 jobs from its Mt Arthur thermal coal operations in the Hunter Valley in July.

This story Administrator ready to work first appeared on Nanjing Night Net.