BHP and Boart Longyear split in the Pilbara

BHP has reportedly brought to an end its existing contracts in the Pilbara as the miner seeks to cut costs.

According to The West between six and ten Boart Longyear rigs that were working on BHP's Pilbara iron ore sites have been removed following disagreements over revised contract pricing.

However it is understood the number of rigs pulled from the sites are at the lower end of the estimation.

BHP was contacted for further comment on the issue, however it stated that it typically does not comment on commercial arrangements with suppliers.

Boart Longyear offered a similar statement, saying it did not comment on individual contracts.

The decision to pull the contractor off BHP sites comes as the miner looks to dramatically cut operating costs in the face of lower commodity prices.

BHP CEO Andrew Mackenzie has previously highlighted "substantial" cuts slated for 2015 and 2016.

Mid last year Mackenzie said the miner would reduce capital and exploration expenditure to $US18 billion for the current financial year, down from $US22 billion in the 2013/14 financial year.

He warned that BHP’s spending would continue to ‘‘decline substantially’’ going forward, favouring productivity efficiencies and attempting to maximise profits from existing projects, whilst freeing up cash flow.

As BHP reshuffles to work existing assets harder, slashing the exploration budget means greenfield exploration tasks will also be minimised and is inline with announcements made earlier this year that no new projects would be commissioned in the near future.

Part of this is a revising of existing contracts, with a focus on reportedly cutting up to a quarter of some contractors.

This latest decision by the miner is a major blow for Boart Longyear, which has faced a year of financial restructuring in a tight market.

The situation for the company was grim, with Boart Longyear CEO Richard O'Brien stating "as indicated in our most recent market updates, we feel we are at, or approaching, the bottom of the market".

In the results, the company added that "the ability of [Boart Longyear] to continue as a going concern is likely to depend on the company successfully concluding its strategic review of recapitalisation options with completion of a recaptialisation transaction no later than 30 June 2015".

"Without such a transaction, in order to continue as a going concern, the company would need to either experience a significant and rapid improvement in market conditions and the financial performance of the company, or secure a future amendment to the terms of the credit agreement to provide additional head room at 30 June 2015, none of which is being assumed at present."

This turned around to a degree late last year BLY received a $324 million bail out after its largest shareholder, Centrebridge Partners, stepped in to rescue the company.

However despite this latest news BLY's share price remains steady.

 

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