Global mining giants are cutting jobs in response to tumbling commodity prices and this week it was once again the coal sector where the pain was felt. US private sector coal company Peabody Energy decided to rein in costs by slashing 450 contractor jobs from its Queensland and New South Wales operations; while freshly merged diversified kingpin Glencore-Xstrata will shelve 47 staff as well as a planned underground expansion of its Ravensworth mine in New South Wales. Sharp falls in coal prices- as well as other commodities- have seen miners across the sector reel in earnings projections, stem development initiatives and shed employees like oak trees in autumn. Stock prices have taken a battering as investors act on their uncertainty about the pace of Chinese economic growth, leaving miners across the sector no choice but to take decisive steps to retain their competitive edge.
Peabody and Glencore-Xstrata join the likes of BHP Billiton Limited
(ASX:BHP), Rio Tinto Limited
(ASX:RIO) and Canada’s Barrick Gold in effecting recent job cuts, representing a broad cross section of the resources sector and illuminating the troubles it faces. BHP is making headlines as it enters talks to divest its jointly owned Gregory Crinum coking coal complex, part of a strategy to offload unprofitable assets that will effect more and more staffing cutbacks. Barrick made job cuts at the beginning of June and has been reported to be on the cusp of further cuts as well as mine closures as the falling gold price takes its toll. Rio meanwhile showed up to 50 management level staff the door as part of a structural overhaul of its West Australian iron ore division. It is also planning to sell its Australian coal assets, its aluminium mining business and reviewing its copper and gold mines.
The sector-wide drama has not escaped the attention of investors. Barrick has taken a dive of 60 per cent from a 12 month high while Rio has fallen from just under $72 in mid-February to less than $52 this week. Beyond that, the pain is evident in the realm of deal making as mining executives operate in safe mode. According to global advisory service Ernst & Young, merger and acquisition activity in the mining sector fell by 45 per cent in the March quarter, while deal volumes were down 35 per cent. Only time will tell if this correction from the heady heights of the resources boom is destined to spell the heavily speculated end of days, or if the cyclical nature of mining will eventually provide an opening for investors to again splash their cash into the ground.
Economic news
A read on manufacturing activity in the world’s second largest economy has slid to a nine-month low. HSBC’s China flash purchasing managers index dropped to 48.3 in June, down from 49.2 last month and down from an expected read of 49.1.
The Bureau of Resource and Energy Economics has forecast a 14 per cent increase in iron ore exports in the coming financial year with the country's big miners pushing ahead with multi-billion dollar expansions despite signs demand growth is softening.
BREE predicted iron ore exports of 610 million tonnes in the financial year that begins July 1 after upgrading its forecast for the current year by 11 million tonnes to 533 million tonnes.
Commentary
Anglo American chief executive Mark Cutifani this week spoke before a Minerals Council of Australia conference in Canberra, confirming the bleak outlook for the mining sector and calling our policy makers to account:
“It does look pretty grim, certainly for the thermal coal industry...In the past 12 months alone, close to 9000 mining jobs have been lost in New South Wales and Queensland. Based on current press coverage, those numbers look like they are about to rapidly increase. The Australian coal industry is at a tipping point for future growth and will only survive if governments want the sector to invest in the country and grow... now the US and Canada, which were formerly high cost producers compared to Australia, have emerged as aggressive cost competitors...we have more than wasted a commodities boom – we have undermined its very foundations by creating uncertainty and doubt in the minds of long term investors...No country can afford to be so cavalier.
Mr Cutifani did not mince words in lamenting what he sees as a "... sense that our relationship with our political leaders is even more disconnected. When dealing with the facts of our contribution to the Australian economy, and the world at large, either our political leadership didn’t care, or didn’t understand. In my simple world, I can find no other way to explain the policy uncertainty that has impacted the Australian mining industry over the last few years. While I can forgive ignorance, I cannot forgive the class warfare tactics that were used to split communities as the facts were lost in a sea of rhetoric focused on a few high profile individuals."
The Newcrest Bugle
Newcrest Mining Limited
(ASX:NCM) is planning to axe hundreds of jobs in Papua New Guinea, according to media reports. The miner's Papua New Guinea operations represent about half of its overall mine assets and the cuts will reportedly affect about 150 local and expatriate jobs.
Newcrest Mining Limited
(ASX:NCM) has appointed former ASX Chairman Maurice Newman to conduct a review of its investor relations practices. Chairman Don Mercer says Mr Newman will have access to the full resources of the company in order to conduct an independent review, before reporting back to Newcrest’s board.
In other news..
Fortescue Metals Group Limited
(ASX:FMG) has warned it will not reach its iron ore shipment forecasts this financial year while spruiking continued strong demand for its main product, iron ore. The Pilbara focussed iron ore miner has blamed west weather for impacting shipments and also revealed the proposed sale of its infrastructure assets has been delayed.
Fortescue Metals Group Limited
(ASX:FMG) has increased the value of Leighton Holdings’ Limited
(ASX:LEI) Pilbara contract by $1.3 billion. Leighton says Fortescue has awarded it a contract variation, lifting the total value of the agreement to $2.8 billion - the largest single contract in Leighton's history.
BHP Billiton Limited
(ASX:BHP) has sold a stake in a West Australian iron ore mine to two Japanese conglomerates. Under the proposed deal ITOCHU and Mitsui will invest a total of $US1.5 billion for a 15 per cent interest in the global mining company’s Jimblebar mine in the Pilbara region.
Rio Tinto Limited’s
(ASX:RIO) production timeline in Mongolia has been dealt a blow after the government delayed launching its Oyu Tolgoi copper and gold mine. Rio Tinto is holding on for the government’s green light and says it’s keen to start shipping as soon as possible.
Drillsearch Energy Limited
(ASX:DLS) says it has achieved encouraging initial test results from its Moruya-1 wet gas exploration in South Australia’s Cooper Basin. The oil and gas explorer continues to receive solicitations from industry players interested in a JV arrangement for the company’s wet gas asset portfolio.
By Joel Spreadborough
