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Glencore-Xstrata cuts costs across coal operations

World Coal,

Glencore-Xstrata says synergies from the acquisition of Xstrata will hit US$ 2 billion in 2014, up from the US$ 500 million that was originally forecast. Of this, US$ 576 million of savings have already been realised from the company’s coal operations.

Coal restructuring

According to a presentation by Peter Freyberg at an investor day, corporate restructuring of the coal business – including the merger of two operating divisions into one in Australia – has saved US$ 65 million. Operational restructuring, which has seen 2700 job losses in the company’s Australian operations, has saved a further US$ 511 million.

“We’ve been able to increase our output across out business with far fewer people,” Frayberg said. The net result has been a 21% increase in average employee productivity in Australia and Colombia.

Coal investment on hold

The company has also cut back on investment in new projects, shelving the Wandoan coal project and indicating that all greenfield projects were under review – with CEO Ivan Glasberg saying he was “fearful” of such projects.

The company has not been shy of criticising other mining companies for continuing to invest in projects despite industry oversupply and rising costs:”30% of the world [coal] production is cash negative at the moment,” said Tor Peterson, head of coal marketing at Glencore-Xstrata. “We believe that’s unsustainable and that the key in coal is going to be quality, arbitrage and an understanding of customer needs.”

The mining industry has seen earnings plunge as commodity prices have been hit by weak demand and production costs have risen.

Edited from various sources by Jonathan Rowland

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