Editorial: A season for tough decisions

September is always a pivotal month in the business year, with eight months of recent asset performance to sift through and a need to plan for the year ahead. It’s a time for many to take a cold look at whether business units have lived up to the optimism built into business plans crafted a year earlier.

And so we’re seeing miners large and small making some of the sober decisions to resolve lingering problems, or deal with non-core assets.

BHP Billiton has led the way with its recent decision to slam the brakes on a US$30-billion expansion of its Olympic Dam copper-uranium mine in South Australia, which would have entailed digging the world’s largest open-pit mine at 4 km long and 1 km deep. The decision even affected projections of Australia’s gross domestic product and it sent shockwaves through the copper and uranium sectors.

Almost lost in the Olympic Dam news was the sale by BHP Billiton a few days later of its wholly owned Yeelirrie uranium deposit in Western Australia to Canada’s Cameco for a cool US$430 million in cash.

BHP’s yard sale is still humming along, with the closing on Sept. 7 of a US$1.91-billion sale of its 37% non-operating interest in Richards Bay Minerals’ titanium mineral sands mining and smelting complex in South Africa to operator Rio Tinto.

Going forward, Richards Bay will be owned 74% by Rio, 24% by Black Economic Empowerment parties and 2% by employees.
Meanwhile there is continued speculation that BHP and Rio Tinto are both keen to unload their Ekati and Diavik diamond mines in Canada, if the price is right and the buyer can show it can deal with closure liabilities at the aging mines. Both Harry Winston Diamond and De Beers would be natural buyers of either mine, but this year’s softness in the rough diamond market has made it difficult to seal a deal.

With coal prices on the skids, BHP and Mitsubishi are shutting down on Oct. 10 their high-cost Gregory open-pit coal mine, which is part of the Gregory Crinum complex in Queensland, Australia. The underground Crinum mine will continue to operate for the foreseeable future, as will the Gregory coal-handling preparation plant at surface. Some 300 workers will be affected by the closure.

Xstrata Coal is feeling the pinch Down Under, too. Citing weak coal prices, high costs and a strong Australian dollar, Xstrata Coal has announced it will slash 600 contractor and “permanent” jobs in the country, but hasn’t broken down the numbers by work site.

On a much smaller scale, Vale’s Australian coal mining subsidiary is shedding around 20 of its 1,300 employees in the country. In Queensland, Vale operates the Carborough Downs coal mine and is part owner of the Isaac Plains coal mine. In New South Wales’ Hunter Valley, Vale operates the Integra coal mine.

On Sept. 12, the Queensland government surprised miners with a new royalty in its state budget, but miners have been loathe to comment on how much the announcement affected their closure and layoff decisions in the state.

(The new Quebec provincial government, which has openly admired Australia’s raft of new mining taxes, needs to pay attention to what it may mean for mining investment and employment down the road if these kinds of tax hikes go through in La Belle Province.)

Iron ore is similarly getting smacked around in the world markets, with yet more fallout for Aussie miners: Andrew Forrest’s iron ore company Fortescue Metals has announced that it will defer planned expansions and chop capital spending to the tune of US$1.6 billion.

“No one can deny it,” Australian Resources Minister and Federal Member for Batman Martin Ferguson told Agence France-Presse in reference to the end of the mining boom in Australia. “Just think about it: coking coal a short time ago was $320 a tonne, now it’s $220 a tonne; iron ore was $180 a tonne, it’s now $105; thermal coal was $220 a tonne, it’s now $80 a tonne.”   
The operational misery even extends into the relatively high-flying gold sector. Great Expectations have become a great disappointment at the underground Burnstone gold mine in South Africa.

Vancouver-based owner and operator Great Basin Gold is throwing up its hands and giving up on its money-losing and problem-plagued mine, marking the demise of yet another once-promising Canadian mining venture in southern Africa.

Send your Letters-to-the-Editor and op-ed submissions to the Editor-in-Chief at: tnm@northernminer.com, fax: (416) 510-5138, or 80 Valleybrook Dr., Toronto, ON  M3B 2S9.