BHP switches contractor as industry seeks to cut costs

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 Contracting 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's the second contract HSE has won on BHP's Queensland coal mines 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 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 Contracting, effective July 1," said a BHP spokeswoman.

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 coal mine 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 that BHP's Saraji coal mine in Queensland was under pressure to reduce its cost structures over the next six to eight 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 coal mines had soared from about $US44 per tonne in 2005 to $US161 per tonne this year.

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

This month rival coal miner Xstrata told a parliamentary inquiry that more than a third of Australian coal mines were unprofitable at current commodity prices.