MARKETS SPECTATOR: BHP's Bowen cost blitz

BHP Billiton has focused its cost cutting microscope over its Bowen Basin operations, which could mean further pain for mining services companies.

Mining services companies beware. BHP Billiton has just completed a review of its Bowen Basin coal operations and it is targeting further cost cuts that may cancel existing contracts or reduce payment in others.

In an ASX statement BHP Billiton says costs reviews have been completed across all of the company’s Bowen Basin operations and BHP Billiton has “set clear targets to reduce costs”.

“We will displace excess contractor volumes and renegotiate rates for remaining volumes,” says the Melbourne-based miner. The company did not provide information on how much work in volume or dollar terms its mining services contractors do for BHP Billiton in the Bowen Basin. Nor did it say how much in absolute or percentage terms in cost savings it was targeting.

Transfield, WorleyParsons, Fleetwood, Cardno are among mining services companies that have cut their earnings forecasts because of cost cuts by miners including BHP Billiton. Earlier this month, BHP Billiton chief executive Andrew Mackenzie told a conference in Spain that the company now had “a more extreme focus on operating performance, productivity, simplification and free cash flow”.

“Our productivity agenda seeks to expand margins and increase returns in the absence of higher prices,” said Mackenzie to an audience of fund managers and analysts in Barcelona.

In the Bowen Basin BHP Billiton says it is concentrating on mining in the right area and at the lowest cost. It plans to “eliminate” excess equipment and related cost.

The company says it is monitoring employee work in the Bowen Basin intensively. “Individual crew and operator performance analysis allows for coaching,” BHP Billiton says.

In an effort to improve productivity BHP Billiton is using larger trucks to haul away coal and these trucks will work for longer hours while their performance is monitored to ensure their most efficient use.

At 1008 AEST, BHP Billiton shares were down 39 cents, or 1.1 per cent to $34.48. The S&P/ASX200 Index was down 31.828 points, or 0.6 per cent, to 4,942.90.