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Jan 21, 2009

BHP Billiton to cut 6,000 jobs and close mine

BHP Billiton, the Anglo Australian mining giant, is to cut 6 per cent of its workforce, around 6,000 jobs, and close its giant Ravensthorpe nickel mine in Western Australia as falling demand for commodities erodes its earnings.

The Anglo-Australian miners' job losses include 3,400 jobs in Australia - mostly in coal and nickel production, 2,000 base metals jobs in Chile and 550 positions at the Pinto Valley copper mine.

Alex Vanselow, the chief financial officer of BHP Billiton, gave warning that more mines could close given the uncertainty in commodity markets, with the Australian metallurgical coal mines already slated to reduce output 10 to 15 percent.

"These are very serious types of decisions and we don't take them lightly, but at the end they are necessary and they are the correct decisions," he said.

BHP blamed the cut in its workforce and the Ravensthorpe closure on the global economic crisis. Prices for key commodities has slumped as demand has weakened in economies around the world, while China's growth has slowed.

The miner said the decision to mothball Ravensthorpe was because of the significant and continued deterioration in the outlook for the nickel market.

"The decision to suspend Ravensthorpe really reflects the weakness in the nickel market, which is probably one of the weakest in all commodities," said Gerard Burg, commodities analyst at National Australia Bank. "I don't think the cuts will be enough to bring a rebound in nickel prices."

The price of Nickel, a key ingredient in stainless steel, has plunged about 80 per cent to $11,200 a tonne from $51,650 a tonne in May 2007.

"Ravensthorpe was always going to be relatively high cost, and it has been a difficult operation from day one," said Tim Schroeders, a portfolio manager at Pengaga Capital.

BHP, which recently walked away from its hostile takeover bid for rival Rio Tinto citing the impact of the global financial crisis, said the cuts would mean a one-off cost of $500 million, without elaborating.

Australian Treasurer Wayne Swan said the job losses were a "tragedy" and a reminder that the country, which has benefited from years of strong demand for commodities from Asia, was not immune to the global economic slowdown.

"What we are seeing today is a sober reminder of the unwinding of the mining boom, caused by the global financial crisis and in particular the slowing of the economy in China," said Mr Swan.

Releasing its half-year production results, BHP said the global economic environment deteriorated sharply in the last quarter of the 2008 calendar year, and it expected the market to remain "weak and uncertain."

Chief executive Marius Kloppers said, however, the miner was well positioned to weather the challenging conditions, and stood ready to make production adjustments if necessary.

"Given the very challenging environment the whole industry has faced over the past few months our production performance was particularly strong," Mr Kloppers said in a statement to the Australian Stock Exchange.

"We have also been quick to take appropriate action to respond to market conditions, such as the previously announced production adjustments and project withdrawals, and we will continue to do so if required."

Aluminium and copper output were both weaker than a year ago, down eight and 11 percent respectively on the same period last year.

Falling copper prices were expected to erode earnings by $US1.3 billion, the company said, with an additional $300 million lost due to price fluctuations and unplanned interruptions at its Escondida mine.

The miner also flagged a pre-tax first half impairment charge of $US1.2 billion in writedowns related to its nickel slowdown, with a further $US400 million likely in the second half.

UBS analyst Glyn Lawcock said the job cuts mirrored recent moves by competitor Rio Tinto, which intends to cut 14,000 jobs worldwide this year in a bid to reduce debt.

"It is extremely tough out there - the volume pushback (from customers) is large and you have to take the necessary actions," Lawcock said.

Australian-listed BHP shares were down 2.7 percent in early afternoon trade, selling for $A28.17 ($US18.29).

Source : TimesOnline
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