BHP Billiton terminates $360m Downer EDI contract

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BHP Billiton Image credit: flickr.com User: Jason Rhodes

BHP Billiton has informed Downer EDI Limited that it is abandoning all activities at its Goonyella coking coal mine in Queensland to ensure long-term viability and avoid financial loses in a climate of mounting job losses and closures.

BHP Billiton Image credit: flickr.com User: Jason Rhodes
BHP Billiton
Image credit: flickr.com User: Jason Rhodes

According to the article on The Sydney Morning Herald, BHP told Downer EDI that its contract for pre-stripping at Goonyella Riverside would be terminated with effect from 9 September, almost two years ahead of its June 2016 expiry.

“The coal industry is undergoing a difficult transition and to be globally competitive we have to reset the cost base of the business,” BHP Billiton Coal President Dean Dalla Vale said.

“This will continue to play out over the near term and coal producers face challenging decisions to find the necessary step changes to create value for shareholders.”

According to him, the move to terminate the pre-stripping contract with Downer was in accord with the company’s efforts to reduce costs and introduce productivity enhancement measures by closing unproductive capacities across its operations.

“Further measures to address wage and other costs are being undertaken at all mines in Queensland and NSW as we continue our detailed reviews of every aspect of our coal operations to ensure every operation remains operating cash positive.”

“Every operation has implemented productivity plans, which have resulted in record production at a number of mines.”

According to the ASX announcement by Downer, the early termination of the contract will see 427 Downer EDI contractors stop work and will cost the company approximately $360 million ($160 million in the 2015 financial year and $200 million in the 2016 financial year).

Under the terms of the contract, Downer will be entitled to compensation for early termination.