Mining jobs to go as ore price drops
FORTESCUE Metals Group will cut jobs and defer $US1.6 billion ($A1.57 billion) in spending on expansion plans in response to rapidly falling iron ore prices.
Australia’s third-largest iron ore producer has sliced its ambitious growth target, blaming volatile commodity markets and uncertainty about future iron ore price movements.
Analysts say the country’s biggest iron ore producers – BHP Billiton and Rio Tinto – could follow suit.
Fortescue’s new near-term growth target is 115 million tonnes of iron ore per annum, well down on its previous target of 155 million tonnes per annum.
It has deferred the development of the Kings deposit within its Solomon mining hub in the Pilbara, and the full completion of its fourth berth at Herb Elliott Port, until ore prices return to more sustainable levels.
The deferrals will reduce Fortescue’s capital expenditure forecast for the 2012-13 financial year to $US4.6 billion, down from the previous guidance of $US6.2 billion.
Production forecasts for 2012-13 have also been revised, to a range of 82 million tonnes to 84 million tonnes, down from previous guidance of 86.5 million tonnes.
Immediate cuts to operating costs and an unspecified number of jobs will save $300 million, chief executive Nev Power said.
However, Fortescue will continue expanding its Christmas Creek mine, and commission the low-cost Firetail deposit at the Solomon mine.
‘‘These measures reflect the company’s ability to reduce and delay cash expenditures to meet market conditions and provide us with head room in the event of further deterioration of iron ore prices,’’ Mr Power said yesterday.
‘‘We are confident that the underlying fundamentals of the Chinese economy are strong and we believe iron ore prices will rebound in the medium term. However, we have moved quickly to strengthen the balance sheet.’’
Mr Power last week blamed recent falls in the spot price of iron ore on Fortescue’s customers – Chinese steel mills – which were running down inventories instead of producing more steel.
BHP, Rio and Fortescue are dependent on continued Chinese demand t o earn returns on the billions of dollars they have committed to expanding iron ore production in the Pilbara region of Western Australia.
City Index analyst Peter Esho said other miners could follow Fortescue’s lead of spending cuts.
I n A u g u s t , F o r t e s c u e reported a 53 per cent rise in full-year profit to $US1.56 billion. Fortescue shares had been higher after Tuesday’s announcement but were down 15¢ at $3.41 at the close of trading yesterday.