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Can LNG save the mining services sector?

Calendar year 2013 will be one most mining service firms would rather forget. Despite their shares bouncing well off the July lows, many in the sector — including Monadelphous Group (ASX: MND), UGL (ASX: UGL) and Transfield Services (ASX: TSE) are still down around 30% since January.

However according to a report in the Australian Financial Review, there could be some light at the end of the tunnel. The huge liquefied natural gas (LNG) projects – Wheatstone and Ichthys – are together expected to award around $900 million in contracts by the end of the year.

The AFR singles out Downer EDI (ASX: DOW) as particularly well placed to win a significant portion of this $900 million in contracts, with Monadelphous and Southern Cross Electrical (ASX: SXE) also considered to be contenders. The expectation of Downer winning some of these major contracts in the coming months appears to at least partially have been built into the share price. Downer’s stock has significantly outperforming its peers, having risen 15% over the calendar year.

It’s not just the huge west coast LNG projects that could help boost the prospects of the mining services sector either, with the AFR noting that there are also around $250 million in maintenance contracts up for grabs in Queensland’s LNG projects, which are being developed by Santos (ASX: STO) and Origin Energy (ASX: ORG) amongst others. Firms that provide maintenance services in Queensland and that could be potential beneficiaries include the beaten down Transfield and UGL.

Foolish takeaway

The fallout from the peaking of the mining boom led to many resource and resource-related stocks falling by 50% or more. While some stocks have recovered, there are still many that could represent value at current prices. Focusing in on sectors and companies that are in ‘sweet spots’ like LNG could help investors identify profitable opportunities.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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