MINING contractor Byrnecut will move up to 60 staff from client Xstrata Nickel’s Cosmos operation as the miner increases its efforts to reduce costs.
Xstrata has confirmed activity is being scaled back at the Cosmos mine, 400 kilometres north of Kalgoorlie, as falling nickel prices and the high Australian dollar put pressure on profit margins.
Xstrata general manager of sustainable development, Wayne Groeneveld, told WA Business News Xstrata Nickel had requested Byrnecut reduce the amount of ore mined, and hence the number of staff on site.
In addition, about 15 Xstrata employees were either being offered redundancy packages or positions at other projects – taking the total workforce reduction to about 15 per cent.
“We’ve made a few adjustments to deal with the current global situation and try and reduce the cost at our Cosmos operation, but we are fully intending to continue operating,” Mr Groeneveld said.
“It’s what any company would be doing in the current environment – moving with the prices.”
Earlier this month, Xstrata posted a 31 per cent drop in half-year earnings, partly due to low nickel and zinc prices, and announced it would cut spending in 2012 by $1 billion.
Xstrata’s other nickel mine in Western Australia, Sinclair, is due to reach end of life towards the end of next year.
Mr Groeneveld said a significant discovery had been made at Cosmos that would allow the company to continue mining in the future, but it would take a couple of years to get through the feasibility process.
He said Byrnecut had welcomed the request for reduced work at Cosmos as it needed staff for other contracts.
The contractor last week finalised a $350 million contract at the Kibali gold project in Africa, adding to its recent win at St Barbara’s Gwalia Deeps mine.
BHP Billiton was one of the first nickel operators to scale back activity in WA this year, cutting around 155 staff at its Nickel West business in February. The company announced a $430 million write-down in the asset earlier this month.
The Nickel West operation comprises mines at Mount Keith and Leinster and nickel production facilities at Kwinana and Kalgoorlie.
The price paid for nickel fell to $US$6.89 a pound this week, which Patersons’ analyst Alex Passmore said was making it difficult for nickel miners that relied on lower-grade ore.
“A lot of people cut back operations between February and May,” he said.
“While most of the sector is break-even, lower-grade production, depending on mine and site specifics, will be uneconomic at the moment.”
The exception has been Western Areas, which managed to maintain a profit of $40.2 million for the 2012 financial year – an achievement Mr Passmore attributed to the company’s high-grade deposit.
Western Areas’ profit still represents a 70 per cent drop, however, down from $139.4 million the previous year when nickel prices averaged $US11.38/lb.
The company was optimistic Indonesian export bans on nickel and lessening Chinese stockpiles had the potential to create an upswing in the nickel price.
It also expected supply of nickel to fall as other companies scaled back operations.
“A global shortage of high-quality nickel concentrate supply, such as the Western Areas’ product, would also assist the company’s ability to continue to secure favourable off-take terms,” the company said in a statement to the ASX.
The tough nickel market has also prompted Panoramic Resources to broaden its portfolio in an attempt to de-risk the business by acquiring platinum and gold assets.
Early last year it bought the Gidgee gold project near Wiluna and in May bought a 70 per cent interest in the Mt Henry gold project near Norseman.
The company also purchased the Panton platinum group metals project in the eastern Kimberley from Platinum Australia for $5.25 million and a royalty payment.
