By Barry FitzGerald
THE leading mining contractors to BHP Billiton - Leighton Holdings and Macmahon - are to be squeezed out of BHP's Pilbara operations under the $US115 billion ($145 billion) joint venture deal with Rio Tinto, and as part of BHP's response to its poor safety record in the Pilbara.
Buried in a document last Friday, BHP and Rio have revealed that the joint venture will "adopt the principle of an owner operator model for the joint venture so that it utilises employees in preference to contractors in long-term operating roles within the joint venture".
"To the extent that current operations involve contractors in long-term operating roles, the manager will progressively shift those operations to the owner operator model."
Details of the operational change were buried in the announcement of the joint venture agreement on Friday.
The move comes as BHP seeks ways to improve its Pilbara safety record. Five fatalities in 10 months at BHP operations included three with Leighton.
"Clearly, we have had, on the contract mining side in particular, a tough time on the safety side," BHP's chief executive, Marius Kloppers, said on Friday.
BHP uses contractors at all of its Pilbara mining operations with the exception of the Mount Whaleback operation, whereas Rio uses them primarily for construction projects.
Leighton and Macmahon are BHP's main contractors, and the uncertainty about their Pilbara business with BHP was the main factor in their heavy share price falls yesterday. Some analysts were indicating the potential for profit warnings to follow.
Leighton was down 2.9 per cent to $23.85 and Macmahon was down 5.2 per cent to 36c.
A Leighton spokesman said yesterday that Leighton Contractors and HWE Mining (another Leighton unit) have had a long association with BHP Iron Ore, going back 20 years on some projects. "At this stage, we don't expect any significant changes to current contract mining activities, given that the joint venture is not expected to come into operation until mid-2010," he said.
Macmahon said yesterday: "Neither BHP or Rio Tinto have advised us of any intention to change their mine operations model at the locations where we are currently working. At this point, we continue on a business-as-usual basis and will engage with our clients when appropriate to understand whether any of our operations will be [affected] by the changes."
Meanwhile, Mr Kloppers is to head to Perth next week to meet the West Australian Premier, Colin Barnett, to discuss the Pilbara joint venture.
Mr Barnett has emerged as the chief critic of the proposed joint venture, arguing it has been structured in a way to avoid $1 billion in stamp duty. He has also warned he will be looking for a "new deal" from BHP and Rio - a $300 million increase in royalty payments is his ambition.
BHP would not disclose Mr Kloppers' travel plans yesterday but it is known he is planning to meet key shareholders in Sydney on Monday and Tuesday before heading west.
Yesterday the Japan Iron and Steel Federation joined the Chinese and European steel industries in raising objections to the proposed BHP/Rio iron ore joint venture. "We view the establishment of the joint venture as a move that would restrict competition," the lobby group said.