Leading iron ore producer, Fortescue Metals Group, has decided to scrap its mining operations contract with outsourced service provider Downer EDI at the Christmas Creek mines in Pilbara.
The said company will not renew its $500 million worth annual contract and has taken up the work in house. The new move comes in the aftermath of a similar step that saved it $200 million a year in 2015 when it axed Macmahon Holdings and consolidated the mining operations at Christmas Creek with Downer.
According to a Reuters report, the world’s No. 4 iron-ore producer is trying to slash overheads to be in sync with the crashed price of iron ore. It is down by a quarter of its erstwhile $200-a-tonne high.
Fortescue is trying to enforce the mining owner-operator model across its Chichester and Solomon hubs.
Chief financial officer Stephen Pearce said Fortescue is in the second cycle of reducing supplier and contractor costs. In May 2015, Fortescue ended the contract with Bis Industries for off-road haulage and adopted it in-house.
“Adoption of an owner-operator model will further reduce Fortescue’s costs through ongoing improvement of the efficiency and productivity of our Christmas Creek mining operations,” Fortescue chief executive Nev Power said.
Downer deployed 900 employees at the Christmas Creek mines that produce 55 million tonnes a year. It is unknown, how many personnel will be joining the main company.
“Our clear focus remains on safety, production and costs,” Pearce said.
Fortescue also put to rest apprehensions that production will be affected by the transition to in-house work prior to the expiry of Downer’s contract.
For Downer, the contract worth $500 million is important and represents a third of its revenue, reports The West Australian.
However, Downer, in a statement, said its fiscal 2016 results will not be affected by the loss of the contract. Around half of the mining equipment belongs to Downer and their mutual agreement mandates Fortescue’s right to buy Downer’s kit at the written-down value.