Mining industry suffers amid drop in spending

0 Comments | Deseret News (Salt Lake City), Jan 21, 2009 | by Sandy Shore Associated Press

DENVER - Withering cost cuts across the mining industry have left tens of thousands of people without jobs from the Arizona desert to the Andes - and there is a litany of evidence that the situation is growing worse.

International mining companies also have postponed or canceled projects and padlocked the gates to mines as consumers have cut spending on cars, jewelry and housing.

Global mining giant Rio Tinto announced last week that iron ore production, used to make steel, tumbled 18 percent in the fourth quarter and said Tuesday its aluminum subsidiary would double previously announced production cuts.

Later Tuesday, BHP Billiton, the world's largest miner, said it would lay off 900 employees and 1,200 contractors at its Australian nickel operations due to a deteriorating outlook for the metal.

Rio Tinto, the parent company of Kennecott Utah Copper, said last Friday that it is cutting 10 percent of its Utah work force. Rio Tinto employs about 2,400 workers in Utah. The company plans to lower its Utah head count by 241 people - 66 current employees and 175 contractors. The cuts for the contractors already were under way last week and began for employees this week.

The Melbourne, Australia-based BHP Billiton said Tuesday that fourth-quarter production of aluminum, copper, lead, silver and uranium oxide concentrate fell on a year-over-year basis.

However, zinc tonnage rose 35 percent, in part because of better grades, and iron ore production was up 5 percent, in part due to expansion projects, the company said.

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 here."

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 Wyoming 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 likely in Tennessee and Montana by Swiss-based Glencore International AG, a commodities company.

Still, job losses have been most severe outside the United States.

Glencore's Bolivian subsidiary recently announced it will layoff several hundred people, triggering labor 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.

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.

Aluminum producers like Alcoa have also slashed production, along with thousands of jobs. Those cuts have spilled over into mining.

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.