The worst has yet to materialise for Boart Longyear (BLY).
The drilling company has forecast continued reduction in demand for its drilling rigs, with utilisation falling to just 45% in the past fortnight from 50% in August and 70% in June last year.
In an update to the market about its troubled debt refinancing this morning, the company noted that global rig utilisation continues to weaken and prices were expected to come under pressure in the second half
The refinancing – forced upon the company by its banking syndicate which offloaded two thirds its $450 million exposure to investors – came at an enormous cost to the company.
In addition to the mammoth 10% interest rate on the five year notes, new and onerous covenants were put in place on liquidity and asset cover that will curb the group's strategic and financing flexibility and inhibit dividend payments. And a nasty spat developed between potential note holders and the banking syndicate over security.
This has coincided with a sharp revenue drop. Almost exclusively involved in mining, with 45% of its revenues exposed to the gold sector, Boart Longyear was punished by the sudden drop in exploration when gold prices crashed earlier this year (see Tim Treadgold's article).
Almost every gold explorer and producer since embarked on drastic cost reduction programs. That is expected to continue.
To compensate, Boart Longyear has responded with its own radical restructure. It has sacked 500 staff, almost 20% of its workforce, announced $160 million cost reduction program with a further 900 staff to go by 2015.
The stock – which once traded north of $18 – bounced off its lows today with a 5.7% rise to 46c.