Rio cost review signals job cuts, starting with Clermont

THE aura of invincibility continues to fade from the mining industry, with Rio Tinto confirming redundancies are afoot at one of its Queensland mines.

By InvestSMART · 20 Jul 2012

By InvestSMART ·
20 Jul 2012

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THE aura of invincibility continues to fade from the mining industry, with Rio Tinto confirming redundancies are afoot at one of its Queensland mines.

The resources giant said a review of the Clermont thermal coalmine, although unfinished, was certain to lead to job cuts.

Rio has been reviewing its global business in recent months, drawing reform suggestions for its corporate and operational levels.

It is unclear whether the focus on Clermont is just an aspect of that global review or something more specific, but a spokesman said the company was committed to keeping its workers informed.

"Rio Tinto is looking at ways to reduce costs at Clermont mine, to improve its competitiveness in an environment of significantly lower thermal coal prices," he said.

"A review is under way and, although the details are to be worked out, it will unfortunately mean redundancies will be required."

Rio reported this week that the Clermont mine which is a joint venture with several Japanese companies had produced thermal coal at an elevated level over the past three months, offsetting the production cuts suffered during a weather-affected first quarter.

But sliding thermal coal prices have been eroding the profitability of the sector recently, and Rio has also been expected to shelve $2 billion in expansion spending for another Australian thermal coal mine, the Mt Pleasant mine, in New South Wales.

Rio has also been increasing its coal operations in Mozambique, where it is now producing both thermal and coking coal.

Earlier this year, Rio's rival BHP Billiton confirmed that it was closing the Norwich Park mine in Queensland, in what was believed to be the first coal mine closure in Australia since the global financial crisis.

The peak of Australia's decade-long mining boom appears to have passed, with most commodity prices and most resources stocks presently fetching significantly lower prices than they were just several months ago.

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Frequently Asked Questions about this Article…

What did Rio Tinto announce about job cuts at the Clermont coal mine?

Rio Tinto said a review of its Clermont thermal coal mine in Queensland is under way and that, although the review is unfinished, redundancies will unfortunately be required. A company spokesman said Rio is committed to keeping workers informed as the details are worked out.

Why is Rio Tinto conducting a cost review at the Clermont thermal coal mine?

Rio Tinto says it is looking at ways to reduce costs at Clermont to improve competitiveness in an environment of significantly lower thermal coal prices. The review is aimed at cutting costs because falling coal prices have eroded sector profitability.

Is the Clermont review part of a wider Rio Tinto global review?

Rio has been reviewing its global business and drawing reform suggestions for corporate and operational levels, but the article says it is unclear whether the focus on Clermont is simply part of that global review or something more specific.

How has Clermont mine been performing recently despite the review?

Rio reported that Clermont produced thermal coal at an elevated level over the past three months, which helped offset production cuts suffered during a weather‑affected first quarter.

How are sliding thermal coal prices affecting Rio Tinto’s plans?

Sliding thermal coal prices have been eroding profitability across the sector. The article notes Rio is expected to shelve about $2 billion in expansion spending for the Mt Pleasant thermal coal project in New South Wales as a result of weaker prices.

What other coal operations does Rio Tinto have outside Australia?

Rio Tinto has been increasing its coal operations in Mozambique, where it is producing both thermal coal and coking coal, according to the article.

Has any other major miner closed coal operations recently in Australia?

Yes. Earlier this year rival BHP Billiton confirmed it was closing the Norwich Park mine in Queensland, which was believed to be the first Australian coal mine closure since the global financial crisis.

What does the Clermont review and falling coal prices mean for everyday investors in mining stocks?

The article suggests the peak of Australia’s decade‑long mining boom may have passed: most commodity prices and resources stocks are trading significantly lower than several months ago. For investors, that means watching company updates on cost reviews, production levels and exposure to thermal coal prices, because those factors are driving profitability and potential job cuts.