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Why Ausdrill’s shares plunged 24%

Mining services company Ausdrill (ASX: ASL) has seen its shares slammed today, losing more than 24%, after the company warned that profits will fall by up to 61% this financial year.

Ausdrill emerged from a trading halt today – which seems to be a theme amongst mining services companies these days.

Construction company Forge Group (ASX: FGE) entered a trading halt on Monday, and suspended its share from trading on Wednesday, to allow the company time to investigate concerns it has over two power station projects. Forge could see its shares mirror Ausdrill’s when it finally resumes trading, if the news is as bad it seems.

Getting back to Ausdrill, a company that supplies miners with drilling equipment, supplies and drilling services. The company has announced that it expects to post a net profit of between $35 and $45 million in 2014, compared to a $90 million profit in the 2013 financial year.

Ausdrill says the weaker than expected outlook reflects a continuation of the challenging market conditions which are expected to remain subdued until the beginning of 2014, when an improvement in selected markets is expected to occur.  Unfortunately for Ausdrill and its shareholders, that appears more hope than anything else, and a turnaround is extremely unlikely.

With miners small and large cutting back on their exploration programs to lower costs, Ausdrill and fellow drilling supplies company Boart Longyear (ASX: BLY) have been at the forefront of the receding mining boom. Ausdrill and Boart Loangyear shares have lost 61% and 73% respectively over the past 12 months, compared to a gain of 20% for the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO).

Foolish takeaway

Mining services is unlikely to be a happy hunting ground for investors for the foreseeable future, with miners expected to further cut costs, leaving a multitude of companies either forced to leave the industry, or cut their margins to the bone just in order to survive. For those with large levels of debt, the risks are even higher.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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