Downturn in mining hits Imdex revenues
Mining services operator Imdex has warned shareholders to expect little improvement in earnings in the year ahead, signalling there will be no recovery in minerals sector demand until 2015 at the earliest, since activity in the sector is yet to bottom.
As a result, the company's September quarter revenues slumped by a further 28 per cent year on year to $53.3 million, due to weak trading conditions in the minerals division where revenue fell a heavy 39 per cent to $35.2 million.
The impact was softened by a firm performance by the oil division where revenue rose 10 per cent to $18.1 million in the quarter.
The sharp fall in revenue resulted in the gross profit for the quarter diving by 84 per cent to just $2.7 million.
"The global minerals industry is in a cyclical downturn, of which there can be no doubt," managing director Bernie Ridgeway told shareholders late last week.
"How long the downturn will last is open to debate. We have taken the view that subdued trading conditions will persist in the minerals industry for the balance of FY14 and may improve in calendar 15."
Pressures on Imdex have been mirrored by others in the sector such as Boart Longyear and Emeco Holdings.
Imdex said spending by large and mid-sized miners remains soft with the hiring of its specialty equipment down 23 per cent in the September quarter.
Unlike others trading in the same sector that are listed on the ASX, Imdex has a growing exposure to the oil and gas sector, where spending levels remain buoyant, which has prompted the company to continue investing to build its presence.
"Profits are reduced in the short term as we continue to progress our business strategy and invest in spending on product development in the minerals and oil and gas sectors," Mr Ridgeway said.
Spending on selected personnel and equipment are continuing, primarily in the oil and gas division and select areas within the minerals division, he told shareholders.
Even with the extremely low profitability, cash levels were boosted recently with the sale of about half of its stake in Sino Gas and Energy, raising a gross $24 million.