Aurizon cuts harder and deeper as resources slump weaken demand for haulage

Aurizon has launched a fresh round of cost cutting, getting rid of more jobs and locomotives and postponing rail projects as the resources slump weakens demand for its haulage services.
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Aurizon chief executive Lance Hockridge said the company needed a comprehensive response to the subdued resources outlook as he outlined up to $160 million in extra pre-tax write-downs for fiscal 2014 on top of some $222 million of write-downs announced six months ago.

Aurizon has slashed an additional 103 jobs at its head office in Brisbane on top of 480 earlier job cuts in its Queensland maintenance operations, and further scaled back its locomotive and wagon fleet. It will get rid of an additional 20 locomotives and 195 wagons after last year warning it would cut its locomotive fleet by 28 per cent and its wagon fleet by 12 per cent.

Commonwealth Bank analyst Matt Crowe said Aurizon had more trains than it needed because many anticipated coal projects, such as BHP Billiton’s Peak Downs expansion, were not going ahead.

Despite a smaller fleet of trains and more than 2000 job cuts since late 2010, improved productivity at the company meant it still had spare capacity, Mr Crowe said.

”They would have hoped that demand was there to fill [the trains] but it’s slowing down,” he said.

Aurizon is stopping work on several rail proposals, including plans to build rail links for the Dudgeon Point coal terminal project at Queensland’s Port of Hay Point.

The North Queensland Bulk Ports Corporation withdrew a proposal to develop the terminal earlier this month due to weaker demand for coal.

Another proposal to expand new rail links at the Wiggins Island Coal Export Terminal near Gladstone was also unlikely to progress, Aurizon said.

”The current and forecast demand [for coal] does not support the continued development or investment in incremental capacity,” Aurizon said.

Aurizon’s cuts come as the value of Australia’s ”committed” resources projects fell in April to $229 billion (about 14 per cent of gross domestic product), from $240 billion late last year, well down from a peak of $268 billion in 2012, according to the Bureau of Resources and Energy Economics.

Aurizon will write off up to $45 million on Wiggins Island and Dudgeon Point. But construction of the first phase of the Wiggins Island project, owned by a consortium of eight coalminers, remained ”on time and on budget” with first shipments expected in mid-2015.

Plans for a railway in Western Australia’s East Pilbara are also on hold with write-downs of $19 million taken on the project as Aurizon concentrates on its $1.4 billion joint takeover bid with China’s Baosteel Resources for iron ore miner Aquila.

Aurizon will take total pre-tax write-downs of between $352 million and $382 million, including $222 million of previously announced impairments, for fiscal 2014.

Aurizon shares closed down 4¢ at $4.96.