Anglo cuts workforce with voluntary redundancies

ANGLO American is trying the softly-softly approach to managing labour costs by offering voluntary redundancies at one of its Queensland mines amid reports that 32 million tonnes of Australian coal production is produced at negative margins.
Anglo cuts workforce with voluntary redundancies Anglo cuts workforce with voluntary redundancies Anglo cuts workforce with voluntary redundancies Anglo cuts workforce with voluntary redundancies Anglo cuts workforce with voluntary redundancies


Lou Caruana

The company, which has been developing the Grosvenor underground mine and ramping up production from its nearby Moranbah North mine in Queensland, offered voluntary redundancies at its Grasstree longwall mine, a spokeswoman told ILN.

“In response to current market conditions and low coal prices, Grasstree mine last week began a voluntary redundancy process and is currently requesting expressions of interest from employees,” she said.

“We expect this process to take about two weeks, at which time offers for redundancies will be finalised.”

Resources Minister Gary Gray was quoted two weeks ago as saying 11,000 coal jobs had been lost in Queensland and NSW in the past year, with more to come.

Since 2008, the cost to transport coal from mine gate to port increased by about 80 per cent, while the capital cost of critical mining equipment increased 75%.

In the same period, wage rates in the Australian mining industry increased 25%, outstripping inflation by an average 10%.

Wood Mackenzie estimates that 4Mt of coal production in Australia is at risk of closure because of shrinking margins.

The decision to continue production instead of shutting it down can mainly be attributed to transport and port contracts in Australia, otherwise known as 'take-or-pay' contracts.

Wood Mackenzie Coal cost analyst Viktor Tanevski said: “There have only been two mine closures so far in 2013, compared to seven in 2012.

“Despite the low coal price environment and current margin squeeze, take-or-pay contracts are incentivising coal producers to increase rather than reduce production, even if additional production is generating negative cash margins.

“This is because the fixed cost of infrastructure capacity makes the cost of shutting down even more expensive than the cost of maintaining production.

“We estimate that only 4Mt, or just over 1% of Australia's coal exports in 2013, is at risk of closure based on hard coking coal (HCC) price of $US171/t and thermal coal price of $US92/t.

This is not a significant volume of output, however the amount at risk increases significantly under a lower price scenario.”

Wood Mackenzie estimates that if average prices fall to $US122/t for HCC and $US77/t for thermal coal in 2013, then 45Mt or 13% of Australia's coal exports in 2013 will be at risk of closure.

At that price, a total of 204Mt of production will be suffering negative margins.

“Our expectation is that there will not be a significant dent in Australia's production this year. However, if prices do fall below expectations, the risk of closure for mines producing at negative margins will increase, reducing output,” Tanevski said.