News from AAP

BHP shuts down BMA mine, sending message to union

Print This Post A A A

BHP Billiton will close an unprofitable, strike-hit coal mine in Queensland while funnelling more funds into its key US energy portfolio.

BHP Billiton on Wednesday said its joint venture company with Japan’s Mitsubishi, BHP Mitsubishi Alliance (BMA), would cease production at the Norwich Park coking coal mine, south-east of Dysart in Queensland.

At the same time, BHP Billiton committed $US708 million ($A692.73 million) for work on a second platform at its Mad Dog oil project in the Gulf of Mexico.

Morningstar analyst Mark Taylor said the closure of Norwich Park made economic sense but also sent a powerful message to the mining union after more than 16 months of unproductive pay talks marred by strikes and rolling stoppages.

“They (BHP Billiton) could argue simply that it’s not generating a satisfactory return but it’s also a convenient way to let some of those other forces at work know that there are consequences: it’s not an endless, golden egg-laying goose,” Mr Taylor told AAP.

“The mine is probably one of their highest cost ones and is causing them grief on multiple fronts, and they can allocate capital better elsewhere, particularly if they don’t have a friendly workforce.”

The industrial action, which had affected all seven of BMA’s Bowen Basin mines, had combined with flooding to hamper production, BHP Billiton said.

Added to BMA’s woes were lower coal prices and higher costs.

The mine had been unprofitable for several months, the miner said in a statement.

Mr Taylor said the coking coal price had been drifting downwards to around $US200 per tonne after peaking at more than $US300 a tonne last year.

The price fall came despite tighter supply due to the Queensland floods and was a result of a dip in demand.

“You don’t need much of decline in demand to take heat out of the market,” Mr Taylor said.

He said it made sense for BHP Billiton to make quick decisions about unprofitable assets because it had major expenditure on the cards with the expansions of the Escondida copper mine in Chile and Olympic Dam copper, gold and uranium mine in South Australia.

“They need to focus on areas where can get the best outcome,” he said.

It was unsurprising that BHP Billiton continued to invest in its key energy division, which is increasingly focused on onshore shale gas projects as well as conventional oil and gas in the Gulf of Mexico.

The latest moves by the mining giant demonstrated the benefit of its diversified portfolio, which gave it many options for allocating capital, Mr Taylor said.