-- Boart Longyear CEO says market conditions clouding mining
sector outlook
-- Downgrades earnings, capex guidance for full year
-- Net profit rises 31.9% in first half of 2012
(Adds CEO comments, details throughout)
By Rhiannon Hoyle
SYDNEY--Mining services provider Boart Longyear Ltd. (BLY.AU)
Thursday downgraded its expectations for full-year earnings and
shied away from speculating on demand in 2013 after saying the
mining sector is in a state of flux.
Australia's multi billion-dollar mining investment boom has been
losing momentum as commodity prices decline at a time when the cost
of building and running mines is rising sharply. This has prompted
some producers to alter or defer plans for new projects until
market conditions improve. BHP Billiton PLC (BHP) said recently it
will postpone or scale back projects valued at more than US$50
billion including its major Olympic Dam project, which would have
become the world's largest open-pit mining operation.
BHP and its rivals have been sharpening their focus on costs and
reconsidering investments as demand from China has cooled with its
slowing economy. Xstrata PLC (XTA.LN) has deferred US$1 billion of
US$8.2 billion in capital spending planned for this year and Anglo
American PLC (AAL.LN) last month said it would delay projects in
order to reduce its capital spending for this year by US$500
million to US$5.5 billion.
Boart Longyear, which specializes in drilling services and
products, Thursday cut its guidance for earnings before interest,
tax, depreciation and amortization by up to a fifth, forecasting a
2012 EBITDA of between US$360 million and US$390 million, down from
an earlier estimate of US$460 million.
The ASX-listed, Utah-headquartered company also trimmed its
capital expenditure budget 8% to US$275 million and its expected
revenue 13% to US$2 billion. The company last reiterated its
guidance in May.
Chief Executive Craig Kipp said uncertain market conditions had
clouded the outlook for the business. Iron ore prices have fallen
by a third in the past two months, to their lowest level since
November 2009, while other commodities are also trading near
multi-year lows.
"We are seeing a mining industry in a state of flux," said Mr.
Kipp. "Global uncertainties like the European debt, decreasing
growth in China, restrictive financing conditions and the upcoming
U.S. elections are driving our mining customers to be more cautious
with their capital and direct it to their higher quality assets,"
he said.
"It is hard for us to determine at this point" how much of an
impact this will have on demand for drilling services, Mr. Kipp
said. He expects the company to see the first indicators on this in
the final three months of the year, when it enters contract
negotiations for 2013 with its mining clients.
The decision to rein in its guidance for 2012 was due to
expectations of a slowdown in the second half of the year, rather
than any decline in activity in the first half, he added.
"What we have seen is the best six months in the history of the
business, but on our experience in the market place...we expect to
see a pause" in the mining boom, Mr Kipp said, who declined to
speculate on Boart's earnings outlook for 2013.
The company's caution on the outlook for the mining sector was
echoed by the chief executive of mining and energy services company
WorleyParsons Ltd. (WOR.AU) Wednesday. John Grill said the
Australian market appeared to soften heading into the end of the
first half of the calendar year.
Still, Boart Longyear continues to expect a 15% on-year rise in
global exploration spending in 2012, Mr. Kipp said. "The large
majors are also in a good cash position, their balance sheets are
in good shape," he said, suggesting acute cutbacks in exploration
work may be unlikely.
Boart Longyear declared an interim dividend of 6.4 U.S. cents,
up a third on its 2011 interim dividend, and said net profit rose
31.9% on year to US$97.7 million in the six months ended June
30.
-Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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