Coal projects get the chop

This afternoon coal major Xstrata announced a bunch of job cuts in the face of ongoing falling prices but more interesting was the following part of the release:

Although we are not breaking down the reductions by individual site, the restructure is focused on scaling back high cost production at some of our mines. We do not expect a material impact on Australian production volumes. We are also reducing some roles at our corporate headquarters in Sydney and consolidating our office-based operations in Queensland.

Our approved growth projects, such as Ravensworth North, Ulan West and our expansion at Rolleston, are proceeding as planned, and remain on budget and on schedule. Feasibility studies into our Wandoan Project continue, to enable an investment decision once relevant approvals have been completed and market conditions permit.

Wandoan is a $6 billion thermal coal project. It sounds to me that it is on the shelf unless thermal coal prices rise. Moreover, they’d have to rise in a manner that was persuasively long term.

And as Xstrata beats about the bush, BHP has cut the chase. From the AFR:

The BHP Billiton Mitsubishi Alliance said it would close its Gregory coking coal mine in Queensland on October 10, as it struggles with falling prices, high costs and the strong Australian dollar.

The move comes after it already closed its Norwich Park for mine for similar reasons in May. Both had been subject to industrial action which has now been resolved.

The Gregory open-cut mine, which is part of the Gregory-Crinum complex including an underground mine, produced 2.8 million tonnes of coal last year, including the half share owned by BHP’s partner, Mitsubishi. The prior year, it had produced 5.4 million tonnes of coal.

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Comments

  1. Wandoan is a “stranded deposit” as I understand – it’s not directly linked to the coal railroad infrastructure. To link it in was going to cost something of a pretty penny. Feasable as long as buyers are paying a pretty penny…….which is no longer happening.

    Brother-in-law works at one of the Moura mines – I hope he’s ok but who knows how far this thing will go.

  2. Royale With Cheese

    I don’t think their messaging has changed on Wandoan since their results announcement a month ago. If Wandoan gets canned though, you can write off the Galilee Basin (I suspect most of us already have) since that coal is twice as deep as Wandoan with a longer rail line needed to be built.

    Xstrata tend to own lots of small adjacent coal mines, unlike the likes of BHP and Rio who own fewer but bigger coal mines. It sounds to me they are stopping the expensive underground stuff at some of their combined open cut/underground projects (eg at Ravensworth, Oaky Creek and Ulan) until prices recover or some sanity returns to the AUD.

  3. As these projects become uncompetitive with falling prices, what happens to out ToT, tax revenue, and in the end mining wages; anyone betting against the trend?

    Part of this might be terms of the Glencore takeover. They are allocating 28M to get rid of the MD, and probably would look to wind down any less profitable assets. Glencore need the cash flow which they lost, and I’m guessing this is part of the big picture.

  4. Whiff of a down turn – better lay off workers. When they cry out for imported labour on the next uptick they should be told to take a long walk off a short pier.

    • Honestly, yes, I would think that the corporates would be using the real or perceived downturn – doesn’t matter! – as an opportunity to reduce the most expensive single part of their operations: labour.

      Can’t say i’m surprised.