BHP to cut 6,000 jobs, take $1.6-billion charge

JAMES REGAN

Reuters

January 21, 2009 at 6:25 AM EST

SYDNEY — — BHP Billiton Ltd. [BHP-N] will cut 6,000 jobs and close its giant Ravensthorpe nickel mine in Australia, writing off $1.6-billion (U.S.), as the global resources giant battles a collapse in commodity prices.

Until now BHP, the world's largest miner, had set itself apart by maintaining production and just last month said sales volumes were holding up despite a global downturn.

But as it became increasingly apparent there would be no quick fix to the slump in commodity prices, BHP was forced to do what it long resisted — close mines and cut jobs.

"Clearly their balance sheet is in a respectable position. But they are not immune from the commodity price environment that we're seeing, and earnings are going to suffer," said Neil Boyd-Clark, managing partner at Fortis Investment Partners.

BHP Billiton Limited

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BHP chief financial officer Alex Vanselow warned on Wednesday more mines could be closed given the uncertainty in commodity markets, with the Australian metallurgical coal mines already slated to reduce output by 10-15 per cent.

"The world changed a lot since October. It's been a very steep and dramatic change ..." Mr. Vanselow said.

BHP said it was cutting some 6,000 jobs in total, with around 70 per cent of those coming from independent contractors that work its mines.

"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," Mr. Vanselow told a news conference.

Rival Rio Tinto [RTP-N]is already eliminating 14,000 workers, while Brazil's Vale has cut 1,300 jobs and put 5,500 workers on paid leave and other miners have also warned jobs were at risk.

Fund managers said brokers were likely to cut their earnings forecasts for BHP, which had been expected to report a net profit around $14-billion for the year to end-June.

"Clearly the pressure on forecasts is on the downside as the market comes to grips with commodity prices that are lower than were expected as recently as a couple of months ago," said Mr. Boyd-Clark.

BHP's London shares slid 2.6 per cent to 1,123 pence by 1008 GMT while Rio Tinto lost 3.1 per cent, compared to a 2.65 per cent decline in the UK mining index, after metals prices suffered more losses.

Mr. Vanselow conceded BHP "got it wrong on Ravensthorpe", a sprawling complex set among outback sheep farms in far west Australia, but analysts said the company was correct to shut it down in face of weak nickel prices.

"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 Pengana Capital.

BHP also said it was reducing activity at its nearby Mount Keith nickel mine.

Besides some 2,100 jobs cut in Australian nickel mining, another 4,000 jobs will go from BHP's 101,000-strong global workforce, Mr. Vanselow said.

About 550 jobs will be eliminated at its Pinto Valley copper mines in the United States, 2,000 at base metals mines across South America, 1,100 at Australian collieries and 200 positions at the Olympic Dam copper and uranium mine in Australia, he said.

With industrial activity worldwide slowing, analysts doubted the cuts to nickel output would be enough to turn prices around.

"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 slumped about 80 per cent to $11,200 a tonne from $51,650 in May 2007.

Rio Tinto last week reported an 18 per cent decline in iron ore production for its fourth quarter and said earnings from its aluminum division would be hurt by falling prices.

Rio has since said it will cut another 6 per cent of aluminum output.

For now, BHP had no intention to reduce iron ore production in Australia, Mr. Vanselow said.

Ravensthorpe, which started production in 2007 about nine months behind schedule, cost $2.2-billion to build and is one of the largest nickel-making facilities in the world.

Output was to be around 7,000 tonnes in January-June against 2,000 tonnes in the six months to end-December, BHP said in late October, predicting it would be at least two years before the mine hit full capacity of 50,000 tonnes a year