Miners get the ‘coaled’ shoulder

Miners get the 'coaled' shoulder

Massive job cuts paint a bleak picture of the industry.

Owen Raszkiewicz

Owen Raszkiewicz is a Motley Fool Contributor. Owen has been a Contributor since 2013, having also spent time as a Fool writer/analyst. He also worked as an Investment Analyst at Zenith Investment Partners, Australia's top research house specialising in managed funds. Owen has appeared on Channel 10's The Project and was invited on the BBC. He holds a Masters of Applied Finance, Masters of Financial Planning, Bachelor of Technology, Advanced Diploma of Financial Services and Diploma of Mortgage Broking Management. In addition, Owen has passed Level 1 of the Chartered Financial Analyst (CFA) Program. He has taken the Banking + Finance Oath (BFO). When he is not writing, Owen is Managing Director of Rask Finance, an Australian financial education company. You can email him: [email protected].

Published June 28, 2013 8:00 am AEST

Only days after US giant Peabody Energy (NYSE: BTU) cut 450 jobs at its NSW and Queensland operations, another 450 employees in the coal industry are being axed by Glencore Xstrata.

In a statement yesterday, the company said "against the backdrop of lower coal prices, high input costs and the strong Australian dollar, the decision to cut production at the mining operations has been taken to maintain viability in challenging market".

The bad news keeps coming for both mining companies and employees, with mining services contractor Downer EDI (ASX: DOW) stripping 185 jobs at its Goonyella Riversdale coal mine in central Queensland.

Many mining and mining services stocks are flailing under adverse market conditions which include reduced demand, increased supply and rising operational costs. Even our biggest resource stocks aren't exempt from the cuts either. Both BHP (ASX: BHP) and Rio Tinto (ASX: RIO) have been shedding costs associated with non-core projects by selling billions in assets and axing "overlapping" administration jobs.

However, if the future looks bleak for our mining sector now, it's only meant to get worse. With the Bureau of Resources and Energy Economics (BREE) predicting that despite rising production, the value of mining and energy exports will drop by $16 billion this year. The reductions come from Australia's two biggest export products including $5.4 billion from iron ore and $9 billion from coal.

Foolish takeaway

Foolish investors (capital "F") should show due diligence when assessing the value of mining and mining services stocks. P/E ratios don't have to be high to be alarming.

The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.