As boom fades, Australia miners put brakes on gravy train

Reuters Middle East

CANBERRA/SYDNEY, Dec 13 (Reuters) - Suddenly strapped for

cash and forced to penny pinch as Australia's decade-long mining

boom fades, resources companies are sending a new message to

staff: The gravy train is over.

Gone are free fruit baskets, weekly barbecues and the

Australian "smoko", or unscheduled work breaks, at some sites.

Frantic demand from China for commodities over the last

decade shielded Australia from the global downturn and prompted

$400 billion in investment. Desperate to retain staff,

six-figure salaries and elaborate extras for everyone from truck

drivers to kitchen help became commonplace.

Private suites with daily linen changes and cable television

replaced pre-boom bunk beds and gang showers.

"I loved my time working in the nickel mine," said Eloise

Martin, who quit a job as a florist to work as a geologist's

assistant just long enough to put together a down payment on a

house.

"In my off hours at the mine, I learned French, took

computer classes and became an expert in four-wheel drives, all

paid for."

But with the boom past its peak, companies are cutting out

many perks, a move they say is needed to offset lower returns

and the high cost of doing business in Australia.

Fortescue Metals Group, an iron ore miner whose

stock split 10-for 1 in 2007 and made a multi-billionaire out of

its founder, has scrapped weekly staff barbecues. Gone too, is

free coffee and ketchup from the canteens, according to a staff

memo.

In the past week, a contracting company overseeing work on

Chevron's $52 billion Gorgon gas project, even banned

sitting during working hours in a bid to keep productivity up.

The contractor's leaked memo, published by the Australian

Financial Review, was criticised by Australia's Workplace

Relations Minister, Bill Shorten, a former union official.

"Presumably the person who typed up that communication has

got be sitting down when they said it," Shorten said.

UNION CONCERNS

The resources industry is full of anecdotes of how firms are

penny-pinching: A coal mine that no longer provides free fruit

in its canteen. Or the chief executive who insists on personally

approving purchases of new office supplies and equipment.

Labour unions complain the actions undermine staff morale

and are really designed to tell workers they need to curb

expectations of what employers will provide outside of a salary.

The Construction, Forestry, Mining and Energy Union (CFMEU)

said management at one Outback mine warned staff if they got

sick over Christmas they would have to fund their own flight

home.

"Some of the cuts might seem silly, but it is the companies

firing a warning shot, letting workers know they are looking for

more productivity," a CFMEU spokesman said.

In September, Australia's richest woman, Gina Rinehart,

complained about the cost of mining in Australia, contrasting it

with the jobs market in Africa, where she said workers could be

hired for under $2 a day.

Some jobs have vanished altogether.

Rio Tinto has spent more than $500 million on

driverless trains to cart iron ore from its mines and is

experimenting with 150 driverless trucks.

HIGH COSTS

Australia is already the biggest producer of iron ore and

coking coal and aims to soon overtake Qatar as the world's top

exporter of liquefied natural gas.

But cost overruns are now threatening the viability of that

target.

A report by the Minerals Council of Australia, an

industry-backed association, showed high labour, transport and

energy costs meant iron ore projects were 30 percent more

expensive in Australia compared to the global average, while

thermal coal projects were 66 percent more expensive.

"Within highly competitive markets for thermal coal, coking

coal, copper and nickel, more than half of Australia's mines

have costs above global averages," Minerals Council chief

executive Mitch Hooke told Reuters.

"The cause is increased labour, energy and transport costs,

and a high exchange rate. Even in iron ore, we have lost our

operating cost advantage for all but established Pilbara

projects."

Rio Tinto is believed to be the lowest cost iron ore

producer in Australia with a cash cost for the first half of

2012 of around $24.50 a tonne. Iron ore sells for around $120 a

tonne but has fallen as low as $90 during the year.

Mining costs only represent the average expense of mining a

tonne of iron ore. Additional costs, such as spending on

exploration and equipment and royalties, need to be covered

before a mining company can make a profit.

In thermal coal, six years ago 63 percent of Australia's

mines fell within the cheaper half of the global cost curve.

By 2012, this has fallen to 28 percent, according to sector

consultants Jackson Partners said.

In copper and nickel, an already-weak cost position shows no

sign of improvement. In both metals, nearly half of Australia's

production is now in the most expensive 25 percent of mines

globally, the firm's research shows.

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