Those brave enough to bet on mining services companies had better take a peek at Boart Longyear’s earnings for the six months to June 30.
The 120-year old company that provides drilling services, drilling equipment and performance tooling for mining and drilling companies says its revenue plunged 35 per cent year-on-year and it made a $US325 million net loss despite $US90 million of cost cuts. Boart’s bottom line was not helped by a $US315 million restructuring and asset impairment charge.
Worse may follow. Drilling activity is still in decline. Rig utilisation rates dropped to 50 per cent in August from 60 per cent in May, says Boart. The current backlog in the company’s products business has also decreased from May levels. Utilisation rates for drilling services contractors are declining, the company says.
“Operating conditions and key performance indicators have continued to deteriorate early in the second-half of the year,” says the company. “The company expects its second-half 2013 result to be lower than” the first half. It is no wonder the stock slumped 8.1 per cent, to 51 cents in early trade. The shares are down 73 per cent so far this year.
Boart’s response is more cost cuts. It expects $US90 million of such cuts in 2014 on top of $70 million of realised cost reductions already this year.
“The magnitude and velocity of the market’s contraction during the year has surprised many in the industry,” says Boart’s chief executive Richard O’Brien. The same could be said for his stock, which may have further to fall.