Glencore could scrap $110m Cobar project

Multinational miner Glencore Xstrata may axe a $110 million expansion project at a mine in NSW, after dismissing its contractor in recent days.

Barely two weeks after Australia's top commodities agency declared that investment in the resources industry had peaked, Glencore fired the contractor it had hired to expand a mine near Cobar.

When asked if the termination was a precursor to cancelling the expansion project, Glencore's local representatives said, "The company is considering its options with regard to the project."

As part of the expansion, a shaft was to have been sunk deeper underground in an attempt to lower production costs at the CSA Cobar mine, which mostly produces copper and silver.

Mining services company Macmahon Holdings was awarded the $110 million contract to sink the expansion shaft, but the company announced to the ASX on Wednesday that its contract had been terminated without an explanation.

In a twist, Cobar mayor Lilliane Brady said she received a phone call on Saturday informing her Macmahon had been dismissed from the mine on Friday - five days before this was declared to the ASX.

"I was in Sydney when I had a phone call to say Macmahon's had finished at Cobar mines," she said.

The termination will only exacerbate a bad year for Macmahon, which has forecast a $20 million loss for the year to June 30, after posting a $37.6 million loss in the six months to December 31.

The project was expected to deliver an extra $6 million in revenue to the company this month, and a further $80 million in 2013-14. About 70 jobs are believed to be linked to the expansion.

"Macmahon is currently seeking clarification on the reasons for, and consequences of, the termination," the company said.

The news pushed Macmahon's shares down 2¢ to 16¢.

While Glencore will now conduct a review of the expansion project, operations at the existing Cobar mine - where more than 300 people are employed - are expected to continue as normal for now.

Glencore appears to have longer-term ambitions for the region, having scooped up exploration territory nearby and a stake in an ASX-listed minnow, YTC Resources, which also has ground nearby.

Ms Brady said the mine, which has operated on and off since 1871, was crucial to the economy of Cobar. "[It] has always been the rock of town," she said.

If Glencore decides to scrap the expansion, it will continue a trend of companies deferring or cancelling spending on new resources projects in Australia.

Two weeks ago, the Bureau of Resources and Energy Economics said Australia had missed out on $149 billion worth of investment through 18 big resources projects being deferred or cancelled in the past year.