Transfield shares hit by mining gloom

The gloom enveloping the mining services sector wreaked havoc on the share price of Transfield Services on Thursday, amid concerns about a quick revival in the company’s fortunes.

The shares fell to their lowest level since August, shedding 14 per cent to 84.5¢.

The steep fall followed meetings with analysts and investors on Wednesday, at which Transfield reiterated earnings guidance for the year ahead, although the suggestion the mine services sector could do it tough for another couple of years may have weighed on sentiment.

The shares are well below the high of about $1.50 touched in late October amid optimism that cost cutting and tighter management controls would revive earnings.

During Wednesday’s meetings, Transfield reaffirmed earnings guidance of a pre-amortisation profit in the range of $65 million to $70 million for the year to June 2014. It said mining-sector investment was at the bottom of the cycle, with seven of Easternwell’s 37 minerals rigs in operation at present, which gave it considerable exposure to any upswing in activity.

Even so, most miners can wait one to two years before needing to restart drilling to replace reserves, it said, signalling that spending may remain subdued for some time yet.

Transfield also denied ongoing speculation it may seek external investors to take a stake in its Easternwell unit, which has a large exposure to the export gas sector in Queensland in particular.

Analysts said an ongoing concern for Transfield was its high level of debt, coupled with the fact that it faced tough competition from offshore groups with deeper pockets in serving the gas export market in Queensland. Recently, Transfield established a drilling rig funding vehicle which may give it more flexibility here.