After weeks of speculation, it has been confirmed that Rio Tinto will be reducing its workforce in its iron ore division. While the mining giant has not stated the number of workers that it will be firing, it is believed that 4 per cent of its workforce will be relieved from its duties. This percentage works out to about 500 workers.
British mining contractors working for Rio Tinto will be following this development carefully. It is a worrying precedence as some of the first workers to be fired are contractors when firms are looking to reduce their operational costs and overheads.
The company has stated that a reduction in the staff number is already going on, and this process has started from the head office located in Perth. Rio Tinto has justified this move by stating that the iron ore market is down, and with the challenging outlook, it is necessary to reduce costs while boosting productivity. This is the only way that the company can compete on a global level.
While the iron ore price recently reached nearly $80 a tonne, prior to that it was around $72 a tonne. Analysts have predicted that this increase will not last long as the price of iron ore will plunge to about $40 to $50 a tonne by 2017.
Rio Tinto decided to reduce its workforce after Western Australian National Party Leader Brendon Grylls put forth a proposal to slap a $5 tax on each tonne of iron ore. Rio Tinto and BHP Billiton criticised this tax, stating that it would result in iron ore miners reducing their headcount.
Western Australia Premier Colin Barnett threw out the proposal, but iron ore mining contractors and companies are still on tenterhooks as it has created uncertainty in the industry, especially since Western Australia is set for elections in March 2017.