Boart Longyear cuts earnings guidance

August 30, 2012

Uncertainty about the state of the global mining industry increased greatly after BHP Billiton announced that it was scaling back or postponing projects valued at more than $US50 billion.

Boart Longyear, the Salt Lake City, UT-based mining services provider can now be included among those with a cautious outlook as it 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.

Many commodity prices have declined and the cost of building and operating mines have increased in recent months. This has led to mining companies such as BHP Billiton to alter plans. All of this comes as the growth in China slows down.

Boart Longyear, which specializes in drilling services and products, 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, Dow Jones Newswires reported.

The company also trimmed its capital expenditure budget 8 percent to US$275 million and its expected revenue 13 percent 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 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, 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, Kipp said, who declined to speculate on Boart’s earnings outlook for 2013.



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