Top-to-bottom surge by mining service firms
Staff reporter, 15 February 2012
CHRISTMAS came early for many mining services companies – and the unveiling of a stack of new contracts is a long way from being finished.
That’s the view of several analysts following the sector in Australia, which has a bevy of listed contractors in the mining, drilling, engineering, construction and consulting sectors.
Heath Andrews, research analyst at Austock Securities, said December “went nuts” for more than a dozen listed contractors. While January was quieter, February was shaping as a repeat of December.
“The pipeline of opportunity has long been talked about, but has been slow to transition to contracts,” Andrews observed.
“Delays have plagued the sector since the GFC. The month of December and this month to date have seen a marked increase in contracts awarded. You get the sense that many projects are starting to move forward. A later benefit for contractors is that as order books fill, margins bid tend to increase.”
In a report focused on ASX-listed Boart Longyear, Macquarie said this week that drillers were “running very hard up until Christmas … [then had a] shorter-than-usual holiday shutdown”.
“Recent quarterly results from Major Drilling and Layne Christensen also point to a robust operating environment over the latter part of the year,” the investment bank said.
Major reported a 67% increase in second-quarter revenue, surpassing prior peak levels, and Layne’s mineral exploration business saw a 40% lift in revenue. Macquarie suggested Boart peers Atlas Copco and Sandvik had “comparable year ends”.
“We think BLY [Boart Longyear] has had a strong finish to the year given industry feedback,” Macquarie said.
“A shorter than usual seasonal slowdown suggests BLY is off to a good start in January.
“In addition, our bottom-up analysis of exploration budgets for some of BLY’s major minerals customers for calender 2012 shows an average 24% increase, which compares to the market’s expectations for only 13% revenue growth in FY12. With the stage set for another year of strong demand, BLY should also benefit from improved pricing.
“Comments from BLY late last year that ‘2012 could see some of the highest pricing in the industry’ as well as Layne’s expectations for ‘much better pricing’ in 2012 are supportive. We expect BLY to guide for growth in FY12 given ongoing strength in global exploration activity, however past experience suggests guidance may be conservative with subsequent upgrades to come over the course of the year.”
Austock’s Andrews said the mining services sector was leveraged to Australia’s (worldwide?) two-speed economy. Resources investment spending looked likely to stay strong “probably to at least 2015, boding well for the sector”.
“The market has rallied since January 1, and mining services has been one of the key beneficiaries. In our view, if the market continues to rally, so will mining services,” he said.
“A lot of money will need to find a home and multiples in the sector are still below previous levels and do not reflect the growth profile of the sector. Most companies are still to report in the sector.”
Andrews expects many mining service company CEOs to hit the road in coming weeks.
“Many of the companies have a habit of rallying post a roadshow, where the pipeline of opportunity usually gets investors excited,” he said.
Also in the February 15 - 21, 2012 edition
- AFRICA
- Getting past first base
- Indaba's sweet timing
- ASIA DESK
- Ampella boss stands his ground
- AUSTMINE
- Vale sponsors Australian mining supply mission
- BREAKING NEWS
- ACCC steps in
- African Queen generates targets
- Alara confirms Saudi project base
- Alpha to look for coal in Tasmania
- Altona to buy China coal properties
- AmmLeach may work at Turkey zinc project
- AngloGold lifts dividend
- ARM, Anglo to test Modikwa ruling
- Atlas restructures
- Ausenco wins key Barrick deal
- Azure finds new El Tecolote zone
- Barminco wins Dugald River race
- BHPB raises $US5.25B
- Blackwood resource boost
- BMA strike starts
- Bokoni mine stoppage
- Botswana Diamonds raises funds
- Broker cool on Emeco Chile move
- Bullant shuts down
- Caledonia agrees Zim mine divestment terms
- Canwealth looks to extend James Bay reach
- Cape Range backs off Camarines Norte
- Capital expects Mayfield boost
- Carrick making ground at Kurnalpi
- Carrick posts Lindsay's reserve
- Central Asia producer switch imminent
- Chanach hopes rise
- Coal contribution grows for Vale
- Coalbank to speed Blackall drilling
- Coalworks steps out
- Contractors win nuclear plant work
- Conway to start bulk sampling
- Crusader moves to Borborema BFS
- Decmil wins more Pilbara work
- Dollar forces TEMCO shutdown
- Downer wins more Karara work
- Eldorado advances in Greece
- Elsienora doesn't disappoint Balamara
- EMED EGM to approve transfer
- Excelsior ready to excel
- Extorre abandons finance deal
- FMG profit surge
- Focus extends Treasure map
- Forte confirms extensions
- Free State mining right lodged
- Gindalbie lands 1.48Bt resource
- Gold lift for Pan African
- Goldcorp posts record earnings
- Gryphon grabs share of Papillon
- Horseshoe funding to reboot exploration
- Jatenergy receives Atan Bara licence
- Jatenergy wins maiden coal sale
- Kingsgate to post Teterita resource upgrade
- Lachlan Star books profit
- Landdrill lands orders
- Large diamonds found at Droujba
- Magma resource boost
- Mbalam gets high-level help
- Medusa says Co-O doing ok
- Metals Finance enters Homeville JV
- Midas looks to extend reach
- Minas Chanca review starts
- Minera starts Ollachea drive
- Minotaur raises Mutooroo sights
- More Copper Bore targets
- More good news for Haranga
- Natasa eyes London listing for Alberta Coal
- New gold target at Marda
- Newcrest receives TSX approval
- NEWS DESK: Hecla silver boost
- Noble closes on first Bibiana pour
- Noble secures final Bibiani funding
- OM output could be derailed
- Ortac to update Sturec model
- Orvana gold reserve boost
- OZ to sell Okvau
- Papua Mining takes AIM
- Paragon recovers big whites
- Paulsens resource lift
- Peak gets 100% of Zari
- Pluton boosts reserves
- POSCO to explore with Legend
- Rio appoints e2v to drive power switch
- Rio to switch on Auto-trains
- Santander potential evident
- Solid Energy hit by closure
- Springsure coal haulage deal
- Steel production down worldwide
- Strategic values magnetite
- Study supports Tembang plan
- Talang Santo mining back on track
- Talvivaara steps up
- Taurus delisting
- Touchstone finds Colombia gold
- Tulla's job now to right Norseman
- Twin Hills starts to dry out
- Vale lifts iron sales
- Vale's broken records
- Ventnor sharpens Thaduna picture
- Wildhorse aims for Mecsek Hills restart
- Yukon court to approve merger
- ZYL expands team
- COAL
- Mozambique aspirations
- NuCoal expands Hunter Valley foothold
- EUROPE
- EU risk undermines gold merger
- EVENTS
- ASX plans Perth mining conference
- Craig Oliver Award nominees announced
- EXPLORATION
- Minnow takes aggressive line on copper project
- Sheffield looks for luck of Iluka
- Silver lining in IOCG hunt
- Straits focus turns to exploration
- Weighing up Sandfire odds
- FINANCE
- Big opening for Altona
- IFM momentum challenged by power cut
- New name, direction
- FROM THE CAPITAL
- Weaknesses show up in results from market leaders
- GOLD
- ‘Best looking gold project I’ve come across’
- HEAVY METAL
- Hunter investment bonanza continues
- INSIGHT
- Australia's productivity conundrum
- MINING IT
- Wiggins Island selects Active ERM
- PROJECT WATCH
- Kaolin prospect looks good on paper
- RUSSIA
- Barrick to divest Russian miner stake
- SOUTH AMERICA
- Lachlan’s star still rising
- VIEW FROM THE WEST END
- Just chatting