Mt Arthur coal on thin ice

The future of the Mt Arthur coal mine has attracted widespread interest following comments from Andrew Mackenzie that the project was “touch and go”, suggesting the mine may be put into care and maintenance if further cost-cutting cannot be achieved.

Following the release of full year results last week, the BHP chief executive said there were three main areas in which the company would seek to put mines into care and maintenance, naming Nickelwest operations and the Cerro Colorado copper mine as difficult assets, and listing the coal business as a third problem area.

“Until quite recently, it [difficulty] would have predominantly been in some of our weaker metallurgical coal mines,” he said.

“We have tried to make even parts of those mines high grade, in order to ensure that we do not keep running the whole mine below variable costs, as opposed to creating a smaller operation above variable costs. 

“People are responding very well in maintaining some of those things.”

In keeping with BHPs focus on ensuring each asset is competitive in its own right, Mackenzie said marginal mines could retain greater contractor workforces if workers were prepared to work for less per person than permanent employees.

“We go through these all the time,” he said.

“With recent movements, our Mt Arthur is probably in that situation right now. 

“We monitor it with a frequency that is greater than monthly. 

“We are touch and go, but seem to be surviving.”

Mt Arthur has seen nearly 300 positions cut in the past two years.

BHPs commitment to making tough economic decisions on assets has been demonstrated in the past, such as putting Norwich Park into care and maintenance in 2012, as well as the spinning off of unwanted assets into South32.

The exclusion of Mt Arthur from the sale of non-core assets into South32 was reportedly a surprise to some analysts.

Newcastle coal futures have averaged $56 in the past six months, down from prices of almost $150 per tonne in 2011.

Goldman Sachs recently cut the 2016 forecast average from $US54 to $48 per tonne.

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