BHP to cut coal costs by $800m

BHP is aiming to find US$600 million in savings from its coal operations, as it focuses on productivity and finding ‘latent capacity’.

However, this ‘resetting’ of the company has drawn fire from the unions.

Speaking today at a Coal Briefing, Mike Henry, BHP’s head of Minerals Australia which encompasses all Australian operations into a single division, outlined the company’s continued focus on reducing costs and driving productivity in an effort to lift BHP’s global competitiveness.

“Rather than waiting for higher prices, we have been deliberate in shaping a quality, focused portfolio that allows us to deliver value in challenging market conditions and positions us well for an expected longer-term improvement in coal market fundamentals,” Henry said.

Part of this is a focus on delivering US$600 million in productivity gains by the end of the 2017 financial year, through releasing latent capacity, which a BHP spokesperson explained as implementing processes such as improving truck movements, increasing infrastructure efficiency to gain greater throughputs, and similar exercises.

This is on top of the US$3.5 billion in cost savings BHP chief Andrew Mackenzie has already slated for the 2016/17 financial year.

The miner is aiming to achieve a truck utilisation of 6500 hours by FY20, and is targeting a wash plant utilisation of 8000 by FY19 as it reduces bottlenecks at the plant.

Henry added that portfolio simplification, such as Crinum’s closure, suspension of operations at Norwich Park and Gregory, and outsourcing of its drill, blast and pre-strip operations, were also ongoing.

“We will continue to pursue further optimisation of our portfolio,” he added, which may include additional divestment of non-core assets such as the recent sell off of its stake in IndoMet Coal in Indonesia for US$120 million.

BHP also highlighted its “pursuit of fit for purpose enterprise agreements”, a model which has been slammed by the CFMEU.

“Fit for purpose is whatever is fit for their purpose,” CFMEU district vice president Steve Smyth told Australian Mining, “and not what is fit for the workers.”

He said the miner is changing existing agreements on issues such as rostering, shift times and the like, adding that the CFMEU has had 19 meetings with BHP on these issues.

In its statement, BHP explained enterprise agreement (EA) renewals are a major focus, and the changes “seek to simplify the EA”.

It added that the “[renegotiation] outcomes need to reflect the current market environment”.

Despite these current market environments, Henry remains optimistic.

“Against the backdrop of greater uncertainty in the outlook for thermal coal, we are confident that base demand in emerging economies will remain resilient for decades to come and our higher quality coals position us well in an increasingly carbon constrained world.”

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