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

There appears to be no sign of a turnaround.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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%.

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

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »