Fortescue Scraps $650m Downer Contract

Wednesday, April 6th, 2016
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Fortescue Metals Group has scrapped a $650 million contract with Downer EDI in a bid to cut costs as it moves to a full owner-operator model at Christmas Creek.

Perth-based Fortescue did not say whether employees from Downer would move across to the company when the current mining services contract ends on September 30.

But the company is aiming to minimise the impact on contractors and employees following a slump in iron ore prices.

Downer EDI shares fell almost 10 per cent despite assurances the decision would not affect the company’s 2016 financial results.

A Fortescue spokesman said the company was working through changes to its organisational structure as it transitions to a full owner-operator model at its Christmas Creek mining operations.

“Our focus is on ensuring a safe and orderly transition with minimal impact on employees and contractors,” a Fortescue spokesman said.

Fortescue awarded Downer a $650 million contract in February last year.

Chief executive Nev Power said production from Christmas Creek was not expected to be affected during the transition later this year.

“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,” Mr Power said.

He said the Downer team had been involved with mining at Christmas Creek since the company started operating in the Pilbara.

Fortescue has relied heavily on the use of contractors at its Pilbara mines.

Mr Power said Fortescue was focused on costs, production and safety as it looks to improve its balance sheet.

Downer EDI said it was in discussions with Fortescue about the transition and would provide an orderly handover of the Christmas Creek operation.

“The transition to an owner-operator model at Christmas Creek is not expected to have an impact on Downer’s 2016 financial results,” the company said in a statement.

Christmas Creek produces around 55 million tonnes of iron ore per annum.

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