MENU

Is BHP’s job chopping a worry for the future?

On the off chance there was a glimmer of hope that the worst was now behind the mining and mining services sector, BHP Billiton Limited (ASX: BHP) this week firmly reminded investors that the ‘Big Australian’ doesn’t see a turnaround happening anytime soon.

Recent events have occurred which provide insight into BHP’s view on the outlook for commodity prices going forward.

Firstly, a report in The Australian Financial Review (AFR) newspaper that BHP had chopped 170 jobs from iron ore operations at Mount Whaleback just days after 100 workers at its Perth office were let go.

Secondly, the decision to terminate a contract with Downer EDI Limited (ASX: DOW) at the Goonyella coal mine in Queensland which I highlighted here.

These events suggest BHP is moving to limit the fallout from lower commodity prices rather than maintaining operations on the expectation that the return to higher prices is close at hand.

There appears to be at least two factors at play here. One is a productivity drive within BHP which has management looking to operate a very lean, low production cost model. The other factor at play – particularly with regards to coal operations – is cost reduction to maintain viability and profitability.

News of Downer’s contract loss sent the stock down 11% on Wednesday and appeared to send a shiver through the wider mining services sector. Shares in Transfield Services Limited (ASX: TSE) and Monadelphous Group Limited (ASX: MND) fell 5.7% and 4% respectively; in comparison the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) was off just 0.3%.

Don't bet on mining service stocks bouncing back anytime soon. Take a look instead at these 3 high-risk/high-reward resources tips which Top Motley Fool Analysts have identified.

Oil, copper, and gold continue to be in high-demand -- and their popularity doesn't look to be slowing. We've uncovered three companies poised to benefit from the rising prices of these commodities. Get our brand-new report -- "3 Tiny Resources Companies That Could Win Big" -- FREE!

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.