MELBOURNE--BHP Billiton Ltd.'s (BHP) metallurgical coal joint
venture in eastern Australia has prematurely axed a contract with
Leighton Holdings Ltd. (LEI.AU) and replaced the mining contractor
with a smaller private company in an effort to slash costs.
The contracting arm of Australia's Leighton will cease work at
the Peak Downs coal mine in Queensland state--which is owned by a
joint venture between BHP and Mitsubishi Corp. (8058.TO)--two years
earlier than expected, Leighton and BHP Billiton said Wednesday.
BHP Billiton Mitsubishi Alliance has instead hired HSE Mining Pty.
Ltd. to remove overburden at the mine site.
The decision reflects the pressures facing mining companies as
prices for coal remain subdued due to weaker Asian demand and as
the strength of the Australian dollar weighs on an industry that
operates using the U.S. currency. BHP's joint venture last year
closed two struggling mines in Queensland, while other companies
have cut jobs and deferred expansion projects.
"Against a backdrop of increasing costs and falling commodity
prices, BMA continues to focus on reducing its overheads and
operating costs across the business," a spokeswoman for BHP said in
an emailed reply to questions. She added that this included
reviewing arrangements with contractors to ensure operations remain
cost competitive.
Leighton said in a statement it would be entitled to
compensation for early termination of the contract. It said it
expects to lose as much as 260 million Australian dollars (US$272.8
million) of work over the next two years as a result of the
contract ending early.
A spokeswoman at Leighton wasn't immediately available for
comment.
Leighton's shares are trading down 0.9% at A$19.90, outpacing a
slight decline in the wider market. BHP's shares are up 3.1% at
A$58.51, matching gains by other mining companies.
Write to Robb M. Stewart at robb.m.stewart@wsj.com and Rhiannon
Hoyle at rhiannon.hoyle@wsj.com
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