Australia miners halt the gravy train

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IronOreStackers

AFP

File photo.

Suddenly strapped for cash and forced to penny pinch as Australia's decade-long mining boom fades, resources companies are sending a new message to staff: The gravy train is over.

Gone are free fruit baskets, weekly barbecues and the Australian “smoko”, or unscheduled work breaks, at some sites.

Frantic demand from China for commodities over the last decade shielded Australia from the global downturn and prompted $400 billion in investment.

Desperate to retain staff, six-figure salaries and elaborate extras for everyone from truck drivers to kitchen help became commonplace.

Private suites with daily linen changes and cable television replaced pre-boom bunk beds and gang showers.

“I loved my time working in the nickel mine,” said Eloise Martin, who quit a job as a florist to work as a geologist's assistant just long enough to put together a down payment on a house.

“In my off hours at the mine, I learned French, took computer classes and became an expert in four-wheel drives, all paid for.”

But with the boom past its peak, companies are cutting out many perks, a move they say is needed to offset lower returns and the high cost of doing business in Australia.

Fortescue Metals Group, an iron ore miner whose stock split 10-for 1 in 2007 and made a multi-billionaire out of its founder, has scrapped weekly staff barbecues. Gone too, is free coffee and ketchup from the canteens, according to a staff memo.

In the past week, a contracting company overseeing work on Chevron's $52 billion Gorgon gas project, even banned sitting during working hours in a bid to keep productivity up.

The contractor's leaked memo, published by the Australian Financial Review, was criticised by Australia's Workplace Relations Minister, Bill Shorten, a former union official.

“Presumably the person who typed up that communication has got be sitting down when they said it,” Shorten said.

UNION CONCERNS

The resources industry is full of anecdotes of how firms are penny-pinching: A coal mine that no longer provides free fruit in its canteen. Or the chief executive who insists on personally approving purchases of new office supplies and equipment.

Labour unions complain the actions undermine staff morale and are really designed to tell workers they need to curb expectations of what employers will provide outside of a salary.

The Construction, Forestry, Mining and Energy Union (CFMEU) said management at one Outback mine warned staff if they got sick over Christmas they would have to fund their own flight home.

“Some of the cuts might seem silly, but it is the companies firing a warning shot, letting workers know they are looking for more productivity,” a CFMEU spokesman said.

In September, Australia's richest woman, Gina Rinehart, complained about the cost of mining in Australia, contrasting it with the jobs market in Africa, where she said workers could be hired for under $2 a day.

Some jobs have vanished altogether.

Rio Tinto has spent more than $500 million on driverless trains to cart iron ore from its mines and is experimenting with 150 driverless trucks.

HIGH COSTS

Australia is already the biggest producer of iron ore and coking coal and aims to soon overtake Qatar as the world's top exporter of liquefied natural gas.

But cost overruns are now threatening the viability of that target.

A report by the Minerals Council of Australia, an industry-backed association, showed high labour, transport and energy costs meant iron ore projects were 30 percent more expensive in Australia compared to the global average, while thermal coal projects were 66 percent more expensive.

“Within highly competitive markets for thermal coal, coking coal, copper and nickel, more than half of Australia's mines have costs above global averages,” Minerals Council chief executive Mitch Hooke told Reuters.

“The cause is increased labour, energy and transport costs, and a high exchange rate. Even in iron ore, we have lost our operating cost advantage for all but established Pilbara projects.”

Rio Tinto is believed to be the lowest cost iron ore producer in Australia with a cash cost for the first half of 2012 of around $24.50 a tonne. Iron ore sells for around $120 a tonne but has fallen as low as $90 during the year.

Mining costs only represent the average expense of mining a tonne of iron ore. Additional costs, such as spending on exploration and equipment and royalties, need to be covered before a mining company can make a profit.

In thermal coal, six years ago 63 percent of Australia's mines fell within the cheaper half of the global cost curve.

By 2012, this has fallen to 28 percent, according to sector consultants Jackson Partners said.

In copper and nickel, an already-weak cost position shows no sign of improvement. In both metals, nearly half of Australia's production is now in the most expensive 25 percent of mines globally, the firm's research shows. - Reuters


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