Miners get the ‘coaled’ shoulder

Only days after US giant Peabody Energy (NYSE: BTU) cut 450 jobs at its NSW and Queensland operations, another 450 employees in the coal industry are being axed by Glencore Xstrata.

In a statement yesterday, the company said “against the backdrop of lower coal prices, high input costs and the strong Australian dollar, the decision to cut production at the mining operations has been taken to maintain viability in challenging market”.

The bad news keeps coming for both mining companies and employees, with mining services contractor Downer EDI (ASX: DOW) stripping 185 jobs at its Goonyella Riversdale coal mine in central Queensland.

Many mining and mining services stocks are flailing under adverse market conditions which include reduced demand, increased supply and rising operational costs. Even our biggest resource stocks aren’t exempt from the cuts either. Both BHP (ASX: BHP) and Rio Tinto (ASX: RIO) have been shedding costs associated with non-core projects by selling billions in assets and axing “overlapping” administration jobs.

However, if the future looks bleak for our mining sector now, it’s only meant to get worse. With the Bureau of Resources and Energy Economics (BREE) predicting that despite rising production, the value of mining and energy exports will drop by $16 billion this year. The reductions come from Australia’s two biggest export products including $5.4 billion from iron ore and $9 billion from coal.

Foolish takeaway

Foolish investors (capital “F”) should show due diligence when assessing the value of mining and mining services stocks. P/E ratios don’t have to be high to be alarming.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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