Saturday, January 24, 2009

Worldwide Mining Hits The Skids

Withering cost cuts across the mining industry have left tens of thousands of people without jobs from Utah's mountains to the Andes -- and there is a litany of evidence that the situation is getting worse.

International mining companies, which only months ago were flush with billions in cash amid sky-high prices for commodities and global demand, have postponed or cancelled projects and padlocked the gates to mines as consumers have cut spending on cars, jewellery and housing.

Global mining giant Rio Tinto, parent of Kennecott Utah Copper, announced earlier this month that iron ore production, used to make steel, tumbled 18 percent in the fourth quarter and said its aluminum subsidiary would double previously announced production cuts.

In response, more than 240 jobs will be lost in Utah as part of a Rio Tinto effort to trim 14,000 jobs worldwide. Locally, employees will be cut from all of the company's business units, including Kennecott Utah Copper, Kennecott Land and Kennecott Exploration.

Rio Tinto, which counts Kennecott Utah Copper as one of the shining stars of its worldwide minerals empire, employs 2,400 in Utah, including about 1,800 people at the Bingham Canyon Mine on the eastern slope of the Oquirrh Mountains in Salt Lake County.

Worldwide, unwanted copper, gold, bauxite (used in aluminum) and iron ore, is piling up or being left underground as the worst recession in at least a generation saps demand.

"Expect inventories to get bigger and expect this continuing process [of cutbacks]," said Andrew Martyn, a portfolio manager who specializes in mining for Toronto-based Davis-Rea Ltd. "It's going to go for quite some time."

The effect on many communities worldwide that rely on mining has been immediate. Workers are protesting job cuts and others are expected to begin migrating in large numbers in search of work, some across international borders.

"A lot of the communities are remote so that when [mines] do shut down, the town actually collapses," Martyn said.

The bulk of the layoffs in the United States are in base metals such as copper and zinc, although major companies are scaling back production of metallurgical coal for use in steel manufacturing.

Coal companies have slowed production from Utah to Australia.

Coal jobs are among the highest-paying in many rural U.S. communities, potentially creating a dire economic ripple effect. In the past, coal companies have been more recession proof, but the average price per ton for Appalachian coal has fallen more than 35 percent since the summer.

At least 700 job cuts are probable in Tennessee and Montana by Swiss-based Glencore International AG, a commodities company.

Job losses have been most severe outside the United States.

Glencore's Bolivian subsidiary recently announced it will lay off several hundred people, triggering labour protests.

Thousands of miners who dig primarily for zinc in Bolivia either have been laid off or left their jobs in the Andes, the poorest region in South America's poorest country. In the mines around the small cities of Potosi and Oruro, the work force of roughly 25,000 miners and refiners has been cut roughly in half.

A controlling stake in Bolivia's largest mine, San Cristobal, has been put up for sale by Denver-based Apex Silver Mines Ltd., which is reorganizing under bankruptcy protection.

Bolivian officials say workers may flood back into villages emptied during a two-year zinc boom that ended in 2007, or they may emigrate to Argentina in search of jobs.

Tens of thousands of mining jobs have been lost in recent months from South Africa to Jamaica as manufacturers shut down. U.S. industrial production plunged by double the amount analysts expected in December, capping the worst year for manufacturers since 2001.

"As little as three to six months ago, steel companies were running flat out around the world because China was making factories to ship goods to the rest of the Western world," Martyn said. "That process has come to a grinding halt."

There are no reliable employment numbers available for the mining industry globally because it spans such a broad geographic, economic and political spectrum, but it is clear that the number of jobs already lost is vast.

The fall off in copper, used in everything from housing to computers, has triggered thousands of layoffs in Peru, Arizona and New Mexico.

Aluminium producers such as Alcoa have also slashed production, along with thousands of jobs. Those cuts have spilled over into mining.

"What all companies are doing that have bauxite and alumina facilities is they're basically retrenching," Argus Research analyst Bill Selesky said. "They may be running them at lower production levels now just to keep up with what's going on. And they won't rehire these people until they actually see an uptick in demand."

In a December address, Jamaican Prime Minister Bruce Golding announced a $6.7 million plan to boost tourism and small businesses to help offset the effects of the downturn in the bauxite-alumina industry.

Industry analysts speculate some signs of improvement could start appearing in the latter half of this year, though others say it could take up to two years.

"Companies still looking to cut costs are going to be cutting out high cost operations. A lot of that should be still to come," Barnard Jacobs Mellet analyst Patrick Chidley said.

BHP Billiton Ltd., the world's largest miner, last week revealed more about the state of production and exploration for the last quarter of 2008.

BHP, which in recent months made an unsuccessful bid to acquire Rio Tinto, said it expects to take $1.7 billion in one-time charges after closing the Ravensthorpe nickel mine in Australia and slashing 6,000 jobs as the global recession curbs demand. It also said it would cut coking coal output by 15 percent.

BHP had its first-half profit estimate reduced 23 percent by ABN Amro Holding NV because of lower production and a slump in commodity prices.

Source: Salt Lake Tribune

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