Australia's Fortescue tells miners to work more as iron ore price sinks
Apr 14, 2015 09:39 AM EDT
Apr 14, 2015 09:39 AM EDT
Australia's Fortescue Metals Group Ltd will change its roster to increase the time workers spend at mines, as the world's fourth largest iron ore producer rushes to reduce costs in the face of plunging prices for the steelmaking ingredient.
The change means workers employed in remote Outback mines will be flown out on charter planes once every two weeks rather than every eight days under a system known as 'fly in-fly out'. Off-duty time in each roster cycle will increase to one week from six days, the miner said on Tuesday.
The slump in iron ore to 10-year lows is hammering profits at Fortescue and other producers, forcing deep cuts in spending and prompting a "thorough organizational review" of operations, Chief Executive Nev Power said in a statement.
"While we would prefer not to have to change what has been a successful and differentiating roster for Fortescue, we are taking steps in response to the threat of oversupply in the market over the medium term."
Analysts said the move was a first step by Fortescue to try and maintain a hold on profits shrinking in step with iron ore prices.
"The market is waiting for Fortescue to demonstrate what it is doing to counter the falling iron ore price," said Morgans Financial analyst James Wilson.
"This (roster change) is not a big deal on its own, but it should improve productivity by keeping employees at the mines longer and indicates Fortescue is not standing still while the price goes down."
Fellow miner Atlas Iron last week said it was suspending mining altogether rather than operate at a loss after exhausting all avenues of reducing costs.
"In this environment, bringing our costs down rapidly and sustainably is critical," Power said.
Ben Lyons, a portfolio manager at ATI Asset Management, said it was hard to quantify the savings Fortescue would make from a roster change, while noting that the firm had "plenty of other options" to shore up its balance sheet such as selling assets like power stations or airports.
"Fortescue has a significant debt burden, but they do have significant flexibility on the potential to relieve that balance sheet pressure," he said.
Fortescue carries around $9 billion in gross debt. It scrapped a $2.5 billion bond sale last month after refusing to pay more than 8.5 percent interest on the notes.
Iron ore stood at $48.80 a tonne, down about 60 percent on last year.
Analysts blame the fall in prices on a massive rise in production due to overestimates of China's appetite for imported ore by sector titans Vale, Rio Tinto and BHP Billiton.
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