Rising unemployment across Australia, particularly in the mining states of Queensland and Western Australia, is the first clue that politicians will soon be taking a fresh look at the cost-cutting decisions of BHP Billiton and Rio Tinto.

The almost boastful way in which Rio Tinto reported in its June half result last week that it had sacked 2200 workers was an invitation for a political reaction, particularly in the way the people dumped were referred to as “reduced headcount” – a term normally associated the culling of cattle.

But the two issues which Blower is watching most carefully are:

• The use of market power by the big two in crushing small rivals, a process which seems to be underway in their iron ore business units, and
• The way once important business units, with BHP Billiton’s nickel division being the case study, have been run down to the point where closing becomes the only option rather than assisting with a sale to keep them operating.

In reverse order, what appears to be happening at BHP Billiton’s nickel division is something that Blower warned about a few weeks ago – that the failure to find a buyer for Nickel West would lead to its outright closure, with a damaging ripple flowing out across a large section of the WA mining industry.

It is possible that a buyer might soon be found, but a point of no return is getting closer and shareholders in BHP Billiton are keen to see the old and troubled business unit off the company’s books.

The problem is that Nickel West has been run down to a point where somebody needs to spend an estimated $1.5 billion on essential maintenance for the mining and processing operations to perform efficiently.

That’s money BHP Billiton ought to have spent over the past 10 years, but opted not to, and it is money that a potential new owner is loath to spend because the nickel price can be so fickle that there’s no guarantee of generating a reasonable return on the investment.

What BHP Billiton wants is to see the back of Nickel West, and it really isn’t concerned about the socially damaging effects of a slashed “headcount”, or the closure of essential nickel-ore processing facilities at Kambalda and Kwinana in WA.

What politicians want is to see an important employer and ore processing business continue and it wouldn’t surprise Blower to discover that they’re already warning BHP Billiton that it needs to do the right thing, even if it means forgetting about getting cash from the disposal, and actually injecting some form of “vendor finance” into the exit process.

The iron ore operations of both big miners are also heading into a political versus business clash as the top two producers use their power as the world’s lowest cost exporters of the material to seize more market share, crushing smaller and higher-cost competitors in the process.

Rio Tinto set that ball rolling last week when it’s chief executive, Sam Walsh, included a couple of caustic comments about high-cost rival miners, some of which are in China and some in Australia.

The official version of events was in the Rio Tinto half-year statement which noted that about 125 million tonnes of high cost iron ore supply is expected to exit the market in 2014, mainly from China and other “less traditional” countries – possibly a reference to iron ore from Indonesia and Iran.

But, in comments made to London’s Financial Times newspaper Walsh seemed to broaden his attack on rivals, suggesting that they get out of the way and leave the iron ore business to the low-cost giants.

“Now, it’s not a time for one of the best iron ore producers in the world to take a step back. Now it’s time for others to really feel the consequences of the price against their operating costs and to then make decisions,” he said.

Some of those “others” being forced to take a step back are Australian miners. IMX is an example, having just closed its Cairn Hill mine in South Australia. Other small Australian mines are also feeling the squeeze.

If that squeeze triggers the collapse of a more prominent iron ore rival than IMX then Rio Tinto and BHP Billiton will find that they might be winning the commercial war but losing the political war as the headcount of sacked workers rises.

Boasting about a better-than-expected financial result feels good at Rio Tinto today and perhaps BHP Billiton next week.

But, the warm feeling of financial success will quickly fade if Australian politicians see too many jobs being sacrificed for higher profits and bigger dividends for mainly foreign shareholders.