Resource Slowdown Hits Mining Service Companies

By
Wednesday, September 24th, 2014
liked this article
Embed
Siemens – 300×250 (Expires October 31st 2017)
advertisement
UK construction
FavoriteLoadingsave article

The impact of the resource slowdown continues to flow through to the mining services sector, which has seen profits and share prices tumble as existing work winds back and some previously committed projects are delayed, according to a report which warns operators within the industry will have to continue to pare back on costs in order to remain viable.

In its latest report, Deloitte Australia says that even as the broader ASX 200 increased by 1.37 per cent, its mining services index measuring changes in market capitalisation of companies involved in the mining services sector dropped by 4.6 per cent in the second quarter.

Eight of the top 10 firms on the list experienced declines in capitalisation during the quarter and three companies included in the index – Boart Longyear, Lycopodium and Southern Cross Electrical Engineering – saw their capitalisation drop by more than 50 per cent.

Around the country, resource sector work has become increasingly scarce as projects commenced during the recent boom approach completion. Beyond that, falling commodity prices and uncertainty over future Chinese demand are leading to a dearth of new projects and existing projects are being delayed.

In coal, for example, neither the $8.3 billion China First nor the $6.9 billion Alpha Coal projects in Queensland have gone into construction despite both having passed their original start dates.

In iron ore, plans for the $7.4 billion West Pilbara Iron Ore project have hit a snag with proponents unable to find a joint venture partner, while Deloitte also says Fortescue’s $4.2 billion Stage 2 development of its Solomon Hub is widely believed to be delayed – albeit with the recent commencement of the $9.5 billion Roy Hill iron ore project expected to support activity in the Pilbara through until 2016.

That is having a massive impact on service contractors. In its latest profit result, construction giant Leighton reported an 11 per cent fall in contract mining revenue, while leading engineering services outfit Worley Parsons saw 2013/14 full year earnings slashed by 22.7 per cent and has reduced headcount by around 4,200 since the peak of the boom in the middle of 2013.

Deloitte managing partners Nick Harwood and Stephen Smith say the short to medium term outlook remains one of softer commodity prices and declining investment levels, and that cost cutting and efficiency programs were the best options for many contractors.

“It is clear that service providers and contractors need to continue to adapt to current and emerging market circumstances, as it appears these will predominate for some time,” Harwood said.

In order, the top five mining services contractors throughout Australia by market capitalisation are Orica, Leighton Holdings, WorleyParsons, ALS and Seven Group Holdings Ltd.

Embed
FavoriteLoadingsave article

Comments

 characters available
*Please refer to our comment policy before submitting
Discussions