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Death by 3,000 cuts

Boart Longyear (ASX: BLY) has cut more than 1,000 staff since the start of this year, but it hasn’t done much for the company’s share price.

Over that period, Boart’s share price has dropped off a cliff, falling 58%. Since May 2008, Boart’s share price has fallen 95% (taking into account stock splits), according to Yahoo Finance.

Boart provides drilling services, equipment and consumables for the resources, infrastructure and energy industry globally. Falling commodity prices have dampened demand for those services and products, and miners have cut back on drilling and exploration, in an effort to reign in their costs and maintain margins.

As Boart’s CEO Richard O’Brien put it, “The downturn in capital and exploration spending in the mining sector globally has clearly reduced the demand for drilling services and products.”

The company also noted that exploration expenditure is estimated to have fallen 20% compared to this time last year. The effects have already been felt by many mining and energy services companies, including Worleyparsons (ASX: WOR), UGL Limited (ASX: UGL) and Ausdrill (ASX: ASL).

Over the past 12 months, Boart has reduced its headcount by around 3,400, and currently still has around 8,000 employees. There may be more cuts to come, after the company said its revenues and earnings will be at the lower end of analysts’ forecasts, which have already been lowered significantly. In 2012, Boart had revenues of US$2 billion and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of US$322 million. Now, the company expects to see revenues of around US$1.5 billion, and EBITDA of under $200 million, although that likely excludes costs associated with staff leaving, such as redundancy payouts.

While Boart has stated that it is now focused on cutting its debt, the main motive behind that is likely to avoid breaching its debt covenants – a worst case scenario could see the company’s bankers knocking on the door and taking control of the company.

Foolish takeaway

Mining services are in a world of pain, and with mining and mineral exploration capital expenditure likely to fall in the next few years, it appears that things are only going to get worse.

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