BHP coal looks for contractor savings

BHP Billiton has confirmed another change of contractor within its Queensland coal division, as the profitability of the sector comes under scrutiny this week.

HSE Contractors will take over from Thiess on July 1 at the South Walker Creek mine, which BHP owns in partnership with Japanese company Mitsui.

The deal continues a trend for mining companies to change contractors in a bid to save money, and has not previously been publicised despite the deal being settled more than a month ago.

It is the second contract HSE has won on BHP's Queensland coalmines in recent months, after it displaced Leighton from the Peak Downs mine that BHP owns in partnership with Mitsubishi.

While Leighton's contract on Peak Downs was dramatically cancelled midway through its term, it is understood the Thiess contract was due to lapse later this year, and HSE was selected instead of renewing the existing contract.

"After a tender process, BHP Billiton Mitsui Coal has awarded the contract for ongoing mining services operations at its South Walker Creek operation to HSE, effective July 1," a BHP spokeswoman said.

BHP's Australian coal division is struggling under high wages and low productivity, with several mines considered to be marginal.

Deutsche analyst Paul Young recently named the Appin coalmine near Illawarra and the Blackwater mine in Queensland as the two BHP mines facing the most margin pressure.

Steve Smyth from the Construction Forestry Mining and Energy Union said there were rumours BHP's Saraji coalmine in Queensland was under pressure to reduce its cost structures over the next few weeks.

BHP will take analysts on a tour of its Queensland coal operations this week and is expected to highlight efforts to reduce costs across the division.

In a recent research note, Mr Young said the average unit cost at BHP's Australian coking coalmines had soared from about $US44 a tonne in 2005 to $US161 a tonne this year.

Mines within the joint venture with Mitsubishi were the most expensive to run.

Earlier this month, rival coalminer Xstrata told a parliamentary inquiry that more than a third of Australian coalmines were unprofitable at current commodity prices.

But despite fears of significant cost cutting in the months ahead, BHP has been adamant that Australian coal remains a strong part of its future.