Boart takes axe to costs as downturn bites
Drilling services provider Boart Longyear has underlined the profound deterioration in the contract mining sector, cutting more than 1000 jobs worldwide while alerting investors it expected a sharp drop in its profits.
Chief executive Richard O'Brien told shareholders at the company's annual meeting that Boart's earnings would be at the lower end of analyst forecasts - which have been slashed repeatedly as sentiment continues to worsen.
"The downturn in capital and exploration spending in the mining sector globally has clearly reduced the demand for drilling services and products," he said in Melbourne on Tuesday.
It came on the same day contractor Transfield Services saw its share price crunched by 24 per cent after a sharp dive in profits forced it to axe 113 jobs.
Contracting giants UGL and WorleyParsons, and smaller players including Sedgman, Fleetwood and Ausdrill have also provided profit warnings in recent weeks.
The more than 1000 jobs to have gone since the start of the year means Boart has now reduced its global workforce by more than 3000, or about 30 per cent.
But despite the heavy-handed cuts, Mr O'Brien said further cost reductions remained high on the agenda as conditions worsen. "With market conditions where they are, we're focusing our efforts on what we can control: total costs," he said.
Utilisation rates for Boart's drilling rigs could fall as much as 20 per cent compared with last year, the company said. Contractors tend to scale their workforce up and down swiftly in reaction to meeting market demand.
The run on the sector has become so predictable that Boart shares actually spiked briefly on Tuesday in reaction to its market update, with some relieved that things were not even worse than they had feared.
But shares in Boart ended the day 0.5¢ lower at 78¢. The stock has lost two-thirds of its value in the past three months, almost reminiscent of the savaging it received during the financial crisis.
The Utah-based, Australian-listed driller said revenue would come in at the lower end of analysts' forecast range of between $US1.466 billion and $US1.726 billion. Earnings before interest tax, depreciation and amortisation would likely come in at the lower end of between $US199 million and $US271 million, it said.
Both would be down dramatically compared with the $US2.01 billion in revenue and adjusted earnings of $US322 million reported last year.
While Boart's debt has risen from $US554 million in February to $US585 million, it said it expected it to fall back to between $US400 million to $US450 million by the end of the year.
During formal proceedings at the annual meeting, a resolution to endorse the company's executive remuneration received a protest vote of 12 per cent.