Peak Jobs: Mapping BHP Billiton’s increasing use of Contractors

On Monday the Australian Prime Minister, Tony Abbott officially opened the Caval Ridge Metallurgical Coal Mine, located in my home state of Queensland. The new mine which has a capacity to produce 5.5-million tonnes of hard coking coal per annum will also create 500-new jobs with BHP Billiton Mitsubishi Alliance (BMA) now employing 7,000 miners in the Bowen Basin region.

As much as those jobs are welcomed they come after BMA cut 700-jobs in September across all of its mines, cancelled an overburden contract with Downer EDI (with a loss of 427-jobs) and sacked 230 from the Saraji coal mine in February. Thus the ledger for 2014 still has a deficit of 857 known positions lost even after the creation of 500 jobs.

The Caval Ridge mine has come under intense scrutiny and criticism for having a 100% Fly-In Fly-Out (FIFO) workforce with miners being sourced from Brisbane and Cairns, a point that the Tony Abbott defended during the opening. In this instance, I agree with the Prime Minister. In fact, as someone who has spent a fair portion of his corporate time effectively as a FIFO worker I can appreciate how a well implemented FIFO programme can be good for both employees and employers.

Last year BHP Coal announced that it was targeting a number of cost saving components in an effort to reduce operational expenditure. They included:

  • A reduction in contractor usage and rates;
  • A significant reduction in overheads;
  • The alignment of mine input costs with the external market;
  • A reduction in exploration and study costs; and
  • The closure of high cost operations.

Given that Caval Ridge had opened this week after 1,357 official jobs cuts earlier this year I thought it might be worthwhile looking at the BHP employment numbers to see if the company was reducing headcount and contractors, as well as where it employed its people and in what resource type they were concentrated in. Here are two charts:

1 - BHPBillitonEmployment_2000~2014

The BHP Billiton Employment 2000 – 2014 chart looks at the average FTE headcount per main region (Europe/Mid-East/Africa, Asia/Other, Australasia, North and South America) against contractors. All figures are calculated as at 30 June.

As the chart (and the title) suggest rather than cut contractors, BHP Billiton over the past three years has almost tripled its contracting headcount since BHP and Billiton PLC merged in 2001. When the companies joined there were 28,051 contractors on the books. Contracting staff peaked in 2013 with a total of 79,330 (no doubt due to several infrastructure projects, including Caval Ridge running concurrently) and dropped off slightly to 76,759 this year. While contractor numbers are up, BHP Billiton employees are much reduced. This year’s global headcount of 47,044 is 22,496 less employees that were employed fifteen years ago.

2 - BHPBillitonEmploymentbyResource_2000~2014

The BHP Billiton Employment by Resource 2000 – 2014 chart looks at FTE employment by main resource category. Copper numbers were added from 2011 but were included with Base Metals totals previously.

Data points of interest in this chart include:

  • The reduction and elimination of steel manufacturing from the business from 2003 – 2011 (BHP Steel was spun off to form BlueScope Steel in 2003);
  • As steel manufacturing decreased and finalised in 2011 there was an increase in iron ore extractive employment from 2011 and it has almost tripled in numbers since 2006 (2,705 employees) and now employs 8,035;
  • There is a slight but noticeable increase in petroleum and potash employment since 2010, almost doubling from 2,178 to 4,207 employees over the past four years; and
  • FTE Coal employment actually decreased from 14,225 in 2013 to 12,318 this year, no doubt due to lowered commodity prices since September 2012.

Although the BHP intent would be to reduce their reliance on contractors, the current evidence is that the company is maintaining its overall Full-Time Equivalent (FTE) workforce while increasing its contractor workforce. The exception is in coal, where poor pricing means it is cutting both FTE and contractor headcount. Today’s BMA workforce of 7,000 is 1,900 less than before the Global recession, a decrease of 21%.

I suspect that in the coming years contracting numbers will continue to decrease across the BHP Billiton network but so will FTE staff as the company continues to automate its fleet, drilling and transport networks. Where it can’t fully automate, or the return on investment is not sufficient it will maintain higher than FTE levels of contract staffing as both a cost reduction and a risk mitigation strategy.

This article appears courtesy of Shane Granger's Peak Jobs blog. To read more economic employment analysis click here.

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