The Boart Longyear (BLY) interim result was always going to be terrible. It was more a question of just how bad.
And the answer was very bad indeed. On top of the expected massive loss was the eye-popping admission that, in the absence of a refinancing or recapitalisation, the company may breach its lending covenants.
The company this morning indicated that it preferred a refinancing and had no plans to issue new equity. But it has very little choice in that department. Any sniff of a capital raising would cause the stock to plunge to dangerous levels, making it incredibly dilutive for existing shareholders.
Boart Longyear has become the whipping boy for the beleaguered mining services industry, a position it is likely to maintain for quite some time (see Inside the mining services disaster).
As the world’s biggest drilling services company, the very segment of the mining industry now in sharp contraction, its lack of diversification has elevated it into the world’s biggest target on how to play the exploration downturn.
That isn’t its only problem. The unsettling combination of too much debt, a plunging share price and an outlook that shows no sign of improvement any time soon guarantees the company will remain under pressure.
The $US329 million loss included $US315 million of restructuring charges and impairments as the company has scrambled to slash costs. More than 2,800 employees have been made redundant as divisions have been rationalised and consolidated.
The result was greeted with alarm, as the share price plunged 11% almost as soon as it came online although buyers came in at the lows which pushed the stock back to a 7.7% decline to 51.5c.
Not surprisingly, senior management issued some soothing words, assuring investors it would be capable of managing the “challenges” facing the company.
But don’t expect any joy any time soon as the foreseeable future appears dismal.
Larger resource houses now are talking about scaling back or delaying mine expansions and offloading second tier assets. BHP (BHP) may even rotate out of coal in the medium to longer term as it ramps up its potash play.
Smaller explorers are experiencing enormous difficulties raising capital to maintain drilling programs. That has seen Boart Longyear’s utilisation levels plunge. A year ago they were at 70%. By May they had plunged to 60% and now they are at 50%.
On its own admission, the situation is as bad as it was in 2009 during at the height of the worst economic crisis to affect the globe.