Even though South32 will be headquartered in Perth there were expectations that Illawarra Coal’s management model would remain largely untouched.

An Illawarra-based union official was certainly expecting consultation with locally based management to continue into the future and even recently joked to ICN that he would only fly to Perth if BHP paid for it.

However, cost cutting plans were revealed during the first day of an analyst-ferrying South32 trip that covered Illawarra Coal – which operates the Appin, Dendrobium and West Cliff longwall mines.

UBS said the visit highlighted the potential to “cost out” at Illawarra Coal through “lower supplier costs and manning levels” along with resource to reserve conversion.

The broker also dropped the bombshell that Illawarra Coal’s Wollongong office is slated for closure as part of planned cost cutting measures.

This office is at the iC Enterprise 1 building at the University of Wollongong’s Innovation Campus where Illawarra Coal was the anchor tenant.

A comparison of long-established Illawarra Coal to Australia’s youngest underground coal miner Whitehaven Coal, which also has surface coal mines, was made in relation to the news of the flagged job cuts.

“In fiscal year 2014 Illawarra Coal had about 2500 full time employees (FTE) and contractors and produced about 7.5 million tonnes of saleable coal,” UBS wrote.

“By comparison, Whitehaven in FY14 had about 760 FTEs and contractors and produced 10.2Mt of saleable coal. While not a direct apples-to-apples comparison, given Illawarra Coal operates much of its own logistics chain including rail and road haulage, it does highlight perhaps one area where costs could be reduced.

“South32 have already indicated that it would close the Wollongong office, seeing the reduction of about 65 positions and the relocation of about a further 60 positions to the mine site or Perth as part of the regional operating model.”

In regards to other plans, UBS revealed that other targeted improvement areas include reducing waste disposal costs for Dendrobium and achieving higher volumes at Appin and West Cliff.

In terms of the resource to reserve conversion opportunity, UBS said it required an expanding mining footprint.

“While West Cliff is scheduled to close in 2016, its longwall equipment will be retained and serve as a spare for operations in Appin, where two longwalls will operate post 2016,” the broker said.

“In Dendrobium, the resources sit outside the current mine lease, but within the exploration lease and management has begun the process of applying to amend the mining consent, which should enable operations well beyond the nine-year reserve life, thus extending mine life at installed capacity of 12Mtpa run of mine and reducing closure provision.”

While the impact of longwall moves can complicate the calculations, UBS estimated that sustainable unit costs were around $US80-85 a tonne for the metallurgical coal producer.

“Lower unit costs have been achieved as a result of the lower Australian dollar (about 43%), lower coal price linked royalties (about 15%) and actual cost out (about 42%),” it said.

The South32 spinoff is widely expected to clear the hurdle of the May 6 shareholder vote while the subsequent listing is targeting May 18.