[miningmx.com] — BHP Billiton has agreed to buy a company providing mining contracting services to its Western Australian iron operations from Leighton Holdings for A$705m ($726.7m) in a move towards a cheaper owner-operater model.
Cash-strapped Leighton, which has been hurt by project delays and writedowns, said on Tuesday it planned to sell HWE Mining which provides mining equipment, staff and assets to BHP’s iron ore mining operations in the Pilbara region.
BHP said the deal was part of a previously-flagged move from a contract mining to owner-operator mining, a model which has also been adopted by rivals like Rio Tinto .
The move is aimed at cutting costs but the key focus for the deal was HWE’s 2,500 staff. A skilled labour shortage in Australia is making it increasingly expensive for miners to recruit new workers directly.
“Transitioning to owner operator in this way, rather than by replacing contractors through direct recruitment, is a lower risk strategy as it would be challenging to replace the highly skilled and long serving HWE employees in the current environment,” Ian Ashby, BHP President Iron Ore, said in a statement.
BHP is also looking to take full control of the mining workforce to improve safety following seven fatalities at its Western Australian operations in 2009 and one last month at Port Hedland.
“Moving to owner-operator will ensure operational control, that includes managing operating costs and also improving safety performance,” BHP spokesperson Kelly Quirke said.
Leighton, which acquired HWE Mining out of administration in 2006, said cash from the sale would be re-invested into Leighton which expects to post a net loss of A$408m this year following a near $1bn profit downgrade in April.
Leighton, majority owned by German construction group Hochtief, has been hurt by escalating costs and delays in its two biggest projects in Australia and writedowns on its Middle East joint venture.
HWE Mining represents around A$1.1bn in annual revenue and A$1.4bn worth of work in hand for Leighton, the company said. It accounts for around 70% of BHP’s iron ore mining operations in the region.
A UBS analyst said for Leighton, the sale at least gives the company some money, rather than being stranded with workers and equipment if BHP had simply not renewed its mining contract. For BHP, the deal saves it from having to buy equipment and looking for miners.
“This is essentially a win-win for both,” analyst Glyn Lawcock said.
