BHP Billiton had a day of the ‘Long Knives yesterday as around 6000 jobs were eliminated around the world, including 3400 in Australia.
Dramatic as the announcement was, it is still a long way from the 14,000 in job cuts announced late last year by rival Rio Tinto, which is continuing to hack into its costly Alcan aluminium buy with more production cuts, closures and jobs lost this week.
As well it revealed plans to close its disastrous Ravensthorpe nickel laterite project in Western Australia, take a $US1.6 billion write-down and also indicated it was reviewing the future of the associated Yabulu processing and treatment plant in far north Queensland.
A total of 2100 jobs are going at Ravensthorpe, Yabulu and at another WA nickel mine at Mount Keith.
BHP said in the quarterly production report: "The global economic environment deteriorated sharply in the last quarter of the 2008 calendar year and we expect the market to remain weak and uncertain. However, we do expect the longer term fundamentals to remain healthy for our commodities."
The company’s Chief Financial Officer, Alex Vanselow said in a call with analysts and the media that the future for metals demand, led by China, remains uncertain and BHP continued to review all its operations.
The move from BHP was its most substantive set of cuts and changes since the boom broke in the back half of 2008.
Rio Tinto Group, Mitsui Mining & Smelting Co, Vale of Brazil (CVRD), Xstrata and Anglo American Plc have all responded by cutting output, jobs and closing mines and production facilities in nearly every commodity bar oil and gas.
BHP shares dropped 29 cents yesterday to $28.66. They are down 42% from their high last May amid fevered speculation that it might win Rio Tinto in its now abandoned hostile takeover offer.
Mr Vanselow said “What we are seeing today is really unprecedented in terms of the economic circumstances." For the medium term, there will continue to be uncertainty and we need to be aligned with that.”
The cuts in nickel were big: BHP had already announced a $US2.1 billion pre-tax write-down on the $US2.8 billion project in November, but yesterday said it would add an additional $US1.6 billion in write downs and $US233 million in half-year losses to the figure, taking the total up to nearly $US4 billion.
Ravensthorpe will be in the BHP books at zero cost after the write-downs.
The market is likely to view this as the most disastrous BHP project since its ill-fated hot briquetted iron plant near Port Hedland and the Magma Copper purchase in the US in the late 1990’s.
Both deals ended the careers of senior BHP managers and board members such as and John Prescott and Jerry Ellis, former CEO and chairman of the company.
As well, there was also a suggestion that the huge expansion project at the Olympic Dam mine in South Australia is now in doubt.
The company cut 200 jobs there and indicated it was still looking at the multi-billion dollar proposal, which was to have started somewhere in the next five years.
Queensland will see 1100 jobs go at the company’s coking coal business it operates with Mitsubishi.
Falling demand from the steel industry has seen cuts of 10% to 15% announced for the business this year.
Ravensthorpe was heavily over budget and behind schedule when it was finally opened in May of last year by BHP’s chairman, Don Argus.
It will close by next June at the cost of 1800 jobs: 1450 are in WA and 350 are at the associated Yabulu nickel refinery in Queensland.
Overall the cuts in WA will be especially hurtful to an economy that is rapidly contracting as the hangover from the commodities boom fades.
Thousands of jobs have already been lost in the state as many mines have closed or been cutback and the housing boom contracts. Last’s gas supply interruption didn’t help. BHP’s 1800 won’t help, nor the hundreds of other jobs that will go as a result of the cuts.
Many of the cuts are contractors, who are not full time employees.
Their departure will probably see a flood of unemployed but skilled workers out of WA and Queensland back into NSW and Victoria in coming months.
Unlike Rio Tinto, it was able to maintain iron ore production at fairly flat levels, but it was forced to sell much of its ore on the lower-priced spot market in order to maintain shipments.
It expects to produce 130 million tonnes of iron ore this year.
There won’t be any job or output cuts at the iron ore business, while Some long-term contract customers have asked to defer deliveries of iron ore and coking coal, the company said in its production report.
Rio is cutting output by 10% from its ore mines in Western Australia because of weaker demand, while the world’s biggest exporter, Vale of Brazil, revealed a 10% cut late last year.
Rio has also trimmed coking coal output by 15% because of slower demand.
BHP’s output of copper fell 11% from a year earlier to 308,200 tonnes because of declining ore grades and electrical faults at the mill at Escondida, the world’s biggest copper mine.
BHP said the global economic environment remained "weak and uncertain" but CEO, Marius Kloppers said the miner would continue to invest in growth projects, but would take a "highly-disciplined and value-focused" approach.
"We also remain alert to potential value accretive acquisition opportunities that may arise in the current market," he said in the production statement.
