The looming expiry of key enterprise bargaining agreements with its mine workers holds the prospect of a new round of coal production disruption for BHP Billiton as the miner pushes for further productivity gains.
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BHP Billiton said on Monday it is "closely managing" its industrial relations exposure, given the expiry of a key agreement in 2015. The existing three-year EBA expires in late 2015, and was only entered into after two years of industrial disputes with unions.
"We have a number of agreements which are either in term, expired or just closed out," the head of the group's coal operations, Dean Dalla Vale, told analysts on Monday.
"I think people get that there isn't an ability to pay for payrises where there is not some direct productivity drive. But certainly it is a risk we watch.
"We wouldn't want to see a repeat ... of what happened in 2012," he said, referring to the bitter industrial dispute that hit its coal division at that time.
The looming EBA negotiations come as BHP continues to pursue extensive changes to its coal operations in a bid to lift productivity, which has also come with extensive job cuts and no let-up in low coal prices.
As recently as September, BHP said it intended to cut 700 jobs at its coking coalmines in the Bowen Basin of central Queensland, while earlier this month mining rival Glencore said it would be idling all of its Australian coalmines for several weeks at the end of the year due to the market over-supply.
Pointing to "challenging" market conditions, BHP said it will slice another 10 per cent off the production costs at its coking coal operations to less than $US90 a tonne, and cut costs 15 per cent to less than $US45 a tonne at its steaming coalmines.
In total, labour and contractors make up around half of the group's operating costs in the coal division, with the labour spend down by 23 per cent in fiscal 2014 as it boosted the amount of material moved per employee by 29 per cent, he said.
Equipment use such as washing plants and haulage trucks has also improved, he said, which are both areas of production bottlenecks.
BHP is increasing coking coal output, primarily used by steelmakers, 4 per cent but output of steaming coal will remain flat. This is despite higher production at the Mount Arthur North mine in NSW, which has been offset by lower power utility demand in the US, which has forced a cut in coal production at its mines there.
"Current market conditions are challenging," Mr Dalla Vale said. "The last two years have been particularly challenging. In the short to medium term we are going to see more pain."
Part of the pressure on steaming coal prices has come from a surge in output from Indonesia, which has added 200 million tonnes to production over the past few years, BHP said.
Mr Dalla Vale defended the role of coal as an energy source, saying it makes up for less than 40 per cent of electricity production, which he sees moving closer to 30 per cent over time.
"It will probably lose market share – but ... [in] a much bigger market," he said.
