Australia's coal miners – both big and small – are scrambling to cut costs in the wake of lower coal prices.
Coal prices have fallen and the big coal miners are shutting mines, cancelling or delaying new projects and laying off workers. Combine that with higher labour costs and the strong Australian dollar, they don't seem to have much choice.
BHP Billiton (ASX: BHP) has announced plans to close its Gregory coal mine near Emerald, in Queensland, with the loss of 300 workers. The company said the mine was no longer profitable, and follows on from the closure of the Norwich Park mine earlier this year, run by an alliance between BHP and Mitsubishi.
Rio Tinto (ASX: RIO) closed its Blair Athol mine earlier this year and downsized its operations at the nearby Clermont coal mine, at which an estimated 400 workers will lose their jobs, while Xstrata Coal will cut 600 jobs and warns of more cuts if needed, as the company looks to reduce high-cost production. Most of the company's 16,000 employees are based in the Hunter Valley of NSW and Queensland's Bowen Basin.
Coal and iron ore are the two major ingredients in steel, and all of the world's major steel producing regions are suffering from overcapacity. China in particular, has been overproducing for the last three or four years. The emergence of cheap gas as a viable alternative to coal, is also threatening to put more downward pressure on coal prices.
These job losses follow Fortescue Metals Group's (ASX: FMG) decision last week to slash 1,000 jobs in the wake of falling iron ore prices.
During the GFC, more than 12,000 mining jobs were lost as miners slowed production, so there could be more job losses to come. The decision to close coal mines, and the resultant lower production volumes will also have an impact on those companies contracted to transport coal for the miners, including QR National (ASX: QRN).
In a potentially good sign for Australian coal miners, India's Business Standard reports that China's State Administration of Work Safety has decided to close 625 small coal mines this year, to ensure safety within the industry after a coal mine explosion killed 43 workers two weeks ago. China's small coal mines have very low safety standards, with more than 2,000 workers dying last year alone.
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Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
