MARKETS SPECTATOR: Mining reverberations

Mining services companies are copping a reality check as the resource sector battens down the hatches.

Just three months ago WorleyParsons chief executive Andrew Wood said “we remain optimistic about our growth prospects”. Now the mining services company says its 2013 net profit may be as low as $320 million compared with $345.6 million in 2012. The stock slumped $3.18, or 14 per cent, to $19.11 at 11:26am AEST.

WorleyParsons says its Western Australian business has been negatively impacted by “softening of demand for resource infrastructure as clients defer major projects and defer cost management initiatives”. No wonder the world’s richest women is telling all not to treat her as an ATM.

UGL this week said its 2013 profit will be down by as much as 47 per cent as the world’s mining companies slash spending. Anecdotal evidence is that those who think the resource sector cost cutting is not the result of a loss in demand may not have a firm grip on reality.

A hotel chain in Western Australia with accommodation near mining sites now have 67 per cent occupancy rates in the year-to-date compared with 100 per cent occupancy rates in the last three years. One engineering consultancy firm had 130 engineers on its payroll in the second half of last year. Now it has 35.

Wood says: “we continue to have confidence in the medium and long-term growth prospects of our business.” Such sentiments are unlikely to help his company’s stock in the short term.