MENU

Monadelphous Group Limited: The worst is yet to come

Mining services company Monadelphous Group Limited (ASX: MND) has seen its share price fall more than 42% since January this year, but that may be nothing compared to what might be coming.

Economic forecaster BIS Shrapnel has today released a report forecasting the biggest fall in mining investment in history is yet to come. Capital expenditure is expected to fall by 40% over the next four years.
Spokesman Adrian Hart says, “If anything we see investment continuing to fall right through to about 2017 before stabilising. Already we’re seeing a substantial slump take place in iron ore and coal investment around the country but now with the LNG investment boom about to end we’re about to see the biggest slump ever in mining investment.

He added that the current slump has barely begun.

Monadelphous has made much of its move into oil and gas, and away from minerals contracting. But Santos Limited’s (ASX: STO) Gladstone LNG project is due for completion next year, as is Origin Energy Ltd’s (ASX: ORG) Australia Pacific LNG – both in Queensland.

Inpex’s US$34 billion Ichthys LNG Project is reported to be 50% complete and scheduled for first production in 2016. Chevron’s huge Gorgon LNG project is 87% complete, with first gas planned for mid-2015, while Wheatstone LNG is 49% complete.

In other words, most major Australian 1LNG projects are due for completion within the next few years. While other major oil, gas and LNG projects are in the pipeline, contract construction work in the sector is highly likely to dry up, placing huge pressure on mining services companies like Monadelphous.

News out today that BHP Billiton Limited (ASX: BHP) will also cut its capital expenditure to US$13 billion in the 2016 financial year, and is looking for significant cost savings from its Australian coal and iron ore operations. It’s not the only resources company either.

Late last week the company announced that first half sales revenue for the 2015 financial year was likely to be between 15% and 20% lower than the previous period. That will result in a larger relative fall in net profit and earnings per share, suggesting current analyst forecasts are highly optimistic, or have yet to be revised down.

Either way, Monadelphous appears headed for a tough few years.

While smaller mining services companies bite the dust and Monadelphous looks set to struggle, there's a 'hidden' set of resources stocks the market is simply overlooking. Discover the names and codes of these 3 surprising ASX plays now in The Motley Fool's brand-new FREE report. Simply click here for your free copy now.

Motley Fool writer/analyst Mike King owns shares in Santos. You can follow Mike on Twitter @TMFKinga

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.