Queensland producers shut mines, shed jobs as coal faces ‘perfect storm’

10th September 2012 By: Esmarie Iannucci - Creamer Media Senior Deputy Editor: Australasia

PERTH (miningweekly.com) – Recent announcements by coal majors of job cuts and lower production expectations have sent a clear message to the government that the industry was not a “bottomless pit” for revenue, the Queensland Resources Council (QRC) said on Monday.

Responding to reports that diversified miners BHP Billiton and Xstrata Coal would cut jobs, while US energy major Peabody Energy would slash its Australian production growth rate by more than half, QRC CEO Michael Roche warned that the introduction of new taxes could further harm the industry.

Xstrata on Monday announced that it would shed some 600 coal-mining and head office jobs in New South Wales and Queensland in a move to lower operating costs during a period of low coal prices.

The Swiss-listed company said that it was undertaking a planned restructuring to respond to industry-wide pressures, which included low coal prices, high input costs and a strong Australian dollar.

Xstrata noted that it would also continue to assess the $6-billion Wandoan coal project, in Queensland, but would not make an investment decision on the project until markets were improved.

Meanwhile, the BHP Billiton Mitsubishi Alliance (BMA) also on Monday announced that it would cease production at the Gregory opencut coal mine, from October 10.

BHP Billiton said in a statement that the decision to cease operations at the Gregory opencut mine, which formed part of the Gregory Crinum complex, in Queensland, followed a continuing operational review of the entire operations, which determined that the Gregory mine production was no longer profitable in the current economic environmental of falling prices, high costs and the strong Australian dollar.

BMA asset president Stephen Dumble said that production costs for the opencut Gregory mine currently exceeded the revenue from product sales, making the only option available to cease production.

“The Crinum underground mine will continue to operate along with the Gregory coal handling preparation plant. The remaining operations will be made more competitive by the removal of the high-cost Gregory production,” said Dumble.

He further noted that the continuing operational review would also identify further measures to reduce operating costs, making the remaining underground production more profitable.

BMA would also continue to review its remaining portfolio of assets to ensure that each operation could be cost competitive and profitable, across the price cycle.

The announcements by BMA and Xstrata followed reports at the end of last week that suggested Peabody Energy would slash its near-term growth plans in Australia by up to ten-million tons a year.

The company flagged the deferral or shelving of three expansions in New South Wales and Queensland, owing to the uncertainty in China, the US and in Europe.

“Peabody is responding to the current macroeconomic concerns by further reducing our capital expenditures, deferring expansion projects, reducing our growth volumes in Australia and redoubling our efforts to aggressively manage our costs,” Peabody CEO Gregory Boyce was quoted as saying.

“By 2015, we've refined our target for our Australian sales to 40-million tons, reduced somewhat from our 45-million to 50-million tons previous target.”

The expansion cutbacks would come from the shelving of a three-million-ton-a-year expansion of the Wambo opencut mine, the delay of a three-million-ton-a-year coal project at Codrilla, and a delay of the Metropolitan coking coal expansion.

“With today’s announcement of 600 job cuts at Xstrata Coal across two states, and in Queensland, the cessation of production at BMA’s Gregory opencut and Peabody’s indefinite deferral of the Codrilla mine expansion, this is the worst time imaginable for governments to be imposing new costs on the coal industry,” Roche said.

“However, with tomorrow’s state budget strongly tipped to impose higher coal royalties and with the federal government reportedly looking at a suite of tax hikes hitting the resources sector, it appears as though the message is struggling to get through.”

Roche warned that Queensland’s biggest export industry was in the grip of a “perfect storm” caused by plummeting prices and rising costs that could only cost more jobs, premature mine closures and the cancellation of some proposed projects.

“Eventually, I hope governments will realise that the rubber band wrapped around their wads of coal cash can’t be stretched forever.

“Queensland is already one of the world’s highest taxing jurisdictions for coal miners, and as the QRC has been telling governments consistently, the best way to boost their revenues from the mining and resources sector is to implement measures that remove impediments to boosting production,” he said.