Ausdrill stock hammered after profit downgrade
A benign set of results from BHP Billiton and a steadying gold price were not enough to stop the rot, as most stocks across the gold, iron ore, copper, uranium and petroleum sectors lost ground.
The biggest hit was worn by mining services provider Ausdrill, which fell by 9 per cent because of a 15 per cent profit downgrade for the year to June 30.
Ausdrill blamed a "general slowdown in activity" that was particularly evident in mining exploration and equipment hire. The company now expects its full-year profit to be as low as $90 million, despite predicting it would be at least $112 million just two months ago.
Ausdrill has already shed more than 300 jobs - about 13 per cent of its workforce - and more job losses could be on the way after it said it would review cost structures including "employee numbers".
Mining companies are increasingly demanding lower costs from contractors.
Atlas Iron managing director Ken Brinsden also noted that contractors were taking a more "pragmatic" approach to pricing since the mining slowdown.
"We have seen an increased level of flexibility, let's put it that way, from the contractor base," he said.
BHP has retained full-year production guidance for its most important divisions - iron ore, petroleum and copper - despite reporting March-quarter results that were affected by bad weather in the Pilbara, Queensland and the Gulf of Mexico.
While the results were slightly below some expectations, most analysts said they were unlikely to alter full-year profit estimates, and BHP shares closed 9¢ lower at $32.06.
RBC Capital is predicting BHP's earnings before interest, depreciation and tax will fall about 12 per cent below last year's to just under $US30 billion.
Atlas, meanwhile, continues to be punished by investors, who have wiped 48 per cent off the company's value over the past two months.
Much of that has been based on forecasts that the iron ore price would soon plummet because of increased supply from new mines.
But the benchmark iron ore price has lost only 12 per cent since February, and it averaged a healthy $US148 a tonne during the March quarter.
Mr Brinsden said the outlook for iron ore exporters was better than most people realised, and he accused the market of a "gross overreaction to the negative".
Despite confirming it was still on track to deliver its full-year production targets, Atlas shares fell by a further 5 per cent, or 5¢, to a four-year low of 96¢.
Gold may have been the big loser of the week, but it steadied on Wednesday and traded in a range between $US1340 and $US1400 an ounce.
Frequently Asked Questions about this Article…
Ausdrill shares fell about 9% after the company announced a roughly 15% downgrade to its full-year profit outlook for the year to June 30. Management blamed a general slowdown in mining exploration and equipment hire, which pushed the profit expectation down to as low as $90 million from the prior guidance of at least $112 million.
Ausdrill has already shed more than 300 jobs — about 13% of its workforce — and said it will review cost structures, including “employee numbers,” indicating further job cuts could be possible if conditions don’t improve.
The downgrade signals increased near-term volatility and margin pressure for mining services providers. For investors, it highlights the importance of monitoring company updates on profitability, cost-cutting measures and contract demand, since contractor revenue and margins are sensitive to the broader mining slowdown described in the report.
BHP reported March-quarter results that were hit by bad weather in the Pilbara, Queensland and the Gulf of Mexico, but it retained full-year production guidance for iron ore, petroleum and copper. Its shares closed 9¢ lower at $32.06, and analysts such as RBC Capital expect BHP’s EBITDA to be about 12% below last year’s level — to just under US$30 billion.
The article notes miners are increasingly demanding lower costs from contractors as activity slows. Atlas Iron’s MD said contractors are taking a more pragmatic and flexible approach to pricing. That pressure reduces revenue and margins for contractors such as Ausdrill and was a factor in Ausdrill’s weaker outlook.
Atlas Iron has been heavily punished by investors, losing about 48% of its value over the past two months. Despite forecasts of a sharp iron ore price fall, the benchmark iron ore price has only lost about 12% since February and averaged US$148 a tonne during the March quarter. Atlas shares fell another 5% (about 5¢) to a four-year low of 96¢, even though the company said it remains on track to meet its full-year production targets.
Gold steadied on the day covered in the article, trading in a range between US$1,340 and US$1,400 an ounce. Iron ore averaged US$148 per tonne in the March quarter and had fallen about 12% since February. Commodity price levels matter because they directly affect miners’ revenues and contractors’ workloads, which in turn influence mining-related stocks.
Based on the article, investors should monitor profit updates and guidance from miners and contractors, announcements about job cuts or cost-reduction programs, contractor pricing trends (miners demanding lower costs), quarterly commodity prices (iron ore and gold), and analyst forecasts — all of which drive sentiment and share price moves in mining and mining-services stocks.
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