GlencoreXstrata is also taking over the management of its Collinsville mine in Queensland from contractor Thiess as it seeks to cut costs and negotiate more flexible work practices.

In an analysts’ briefing on the Peabody June quarterly result, its chairman and chief executive Gregory Boyce said the move to the owner-operator mines was already paying dividends for the company.

“The operations are running very well and the asset base is better than expected,” he said.

“And our owner-operator conversions are also exceeding our expectations with cost now down more than 20% at the mines we converted.

“So overall on Australia, our productivity and cost initiatives allowed the team to reduce the contractor and employee workforce more than 20% since the beginning of the year without affecting our production target ranges.”

Whole year, Peabody is hoping for Australian sales of 33-36 million tonnes, including 15-16Mt of metallurgical output and 11-12Mt of export thermal coal.

Peabody is reducing 2013 Australian cost targets to the mid-$US70 per tonne range, with 2013 US costs per tonne expected to be 2-3% lower than last year.

This week Peabody announced it would slash another 400 workers from its New South Wales and Queensland operations.

It follows its announcement earlier this year that 450 contractor positions would be cut in Australia as it sought to operate the mines more profitably during the climate of lower coal prices.

The Wilpinjong and Millenium mines were seen as test cases for conversion to owner-operator mines.

Wilpinjong, an open cut mine 40km northeast of Mudgee in NSW, produces high-quality thermal coal for export and domestic markets.

Peabody purchased Wilpinjong in 2006 and now has a workforce of about 320, including contractors.

It is mined under contract by Thiess and will transition to Peabody owner-operator status in the lead-up to March 31.

With an average strip ratio of 2:1 for the life of the mine, Wilpinjong is one of the lowest-cost coal mining operations in Australia.

Wilpinjong produced 8.9Mt of saleable coal in 2011.

The open cut Millennium mine, 160km southwest of Mackay in Queensland, produces coking and low to mid-volatile pulverised coal injection coal for export markets.

Operations began in 2006 and it now has a workforce of about 300 people, including contractors.

It is mined under contract by Downer EDI Mining.

The Millennium expansion project will see the existing mining operation grow into two new lease areas and increase the mine’s run of mine extraction rate up to 5.5 million tonnes per annum.

In 2011, Millennium produced 1.7Mt of saleable coal and is working to ramp up to 3Mtpa.

“Within the seaborne markets, Australia is looking increasingly competitive again, giving its improving cost structure proximity to the best end markets at recent favourable currency movements,” Boyce said.

“Some of those cost reduction initiatives have included savings from multiple owner-operator conversions in Australia as well as productivity improvements at its PCI operations, a drop in contractors, temporary labour and overtime to streamline operations and efforts across the supply chain to reduce costs of materials and supplies.”