You can ignore the positive comments coming from mining services contractors about this being the bottom and a bright future awaits, things have only just got started.
BHP Billiton Limited (ASX: BHP) has announced that it will cut up to 3,000 jobs from its Western Australian Iron Ore (WAIO) division, which currently employs 16,000 workers, according to ABC News. Most of those staff are understood to be contractors, whose positions will end when their contracts are not renewed.
A spokeswoman has told the ABC that the job cuts are necessary to ensure BHP Billiton remains a competitive, world class operation.
And BHP is unlikely to be the only one. Rio Tinto Limited (ASX: RIO) already automates a big chunk of its operations, with trucks and trains operated remotely from a control centre situated in Perth. If commodity prices, continue to head south, expect the iron ore and coal miners like Fortescue Metals Group Limited (ASX: FMG), Whitehaven Coal Limited (ASX: WHC) and New Hope Corporation Limited (ASX: NHC) to cut costs further, with more jobs likely to go.
While iron ore has seen a couple of up days recently, the long term trend, thanks to massive supply coming online and slow growth in demand, is down.
Several mining contractors have suggested that the outlook is on the improve, but that appears to be more hope than anything else. A big concern for the contractors is that many large Australian resources, oil and gas projects are coming to an end, and are unlikely to be replaced by similar jumbo multi-billion dollar projects.
We've been warning for some time now to avoid the mining services sector – because the risks outweigh the potential returns – and that appears unlikely to change any time soon.
