Boart Longyear (ASX: BLY) shares have dived by more than 32%, after the global drilling firm cut guidance, citing limited visibility.
The company stated “We are seeing a mining industry in a state of flux. Global uncertainties like the European debt, decreasing growth in China, restrictive financing conditions, and the upcoming US elections are driving our mining customers to be more cautious with their capital and direct it to their higher quality assets.”
Boart Longyear is one of the world’s leading providers of drilling services and products to the mining industry, but it appears to also be suffering from falling commodity prices as its customers cut back on spending. We’ve already seen BHP Billiton (ASX: BHP) cut a number of its mega-projects, while Rio Tinto Limited (ASX: RIO) has also flagged a review of its expansion plans.
Just yesterday, the company reported an interim net profit of US$98 million, up 32% over the previous period. All well and good, but looking ahead, the company is forecasting a flat 2012-13, guidance which sent the shares tumbling.
Boart’s much smaller competitor, Ausdrill Limited (ASX: ASL) has forecast a completely different outlook. Ausdrill is targeting a 15% increase in revenues, while also reporting the outlook beyond the 2013 financial year remains strong in its key sectors. The contrast couldn’t be greater, although admittedly Ausdrill also provides contract mining services.
Exploration drilling is usually one of the first casualties when miners start cutting their capital spending, as they focus on their existing mining operations.
Boart’s warning comes as iron ore prices continue to plummet, trading at around US$90 a tonne overnight. Despite the rapid falls, Fortescue Metals Group’s (ASX: FMG) CEO suggested today that he expects iron ore prices to suffer sharp falls before rebounding to US$120 a tonne in the short-term.
The Foolish bottom line
Only time will tell whether iron ore prices recover, but with other commodity prices falling as well, many mining services companies face difficult times ahead.
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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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