Ausdrill halves profit forecast

Downgrading its profit forecasts by half, mining service company Ausdrill is the latest contractor to be hit by the weaker mining market.

The company said it expects to report a net profit after tax of between $35 million and $45 million for the 2014 financial year, a far cry from the $90.4 million profit Ausdrill posted last financial year.

Revenue is now expected to fall to between $825 million and $925 million, an expected drop of between 18 and 27 per cent year on year.

Ausdrill reported revenue for the 2012/13 financial year of $1.129 million.

The contract driller said the weaker than expected outlook is a result of “challenging market conditions” which it expects will remain deflated until early next year.

Ausdrill said moves to defer non-essential expenditure including exploration programs and maintenance will taper in the short term.

“Surplus capacity that exists in the mining services industry will start to diminish in FY2015,” the company stated.

Key challenges that are resulting in Ausdrill’s weaker performance include mining production, exploration and equipment hire rates.

The company said miners are reducing waste volumes for this financial year as a means to improve cash flows and operating costs.

“This has impacted on Ausdrill’s contract mining and drill and blast services,” the company said.

However the contractor said it is hopeful mining volumes will increase in the 2015 financial year, adding it is actively tendering for work in both Africa and Australia to fill the gap.

“Any new work is expected to commence in early 2014,” Ausdrill said.

A drop off in exploration activities is also inflicting pressure on Ausdrill’s margins, a business area which it says is “not showing signs of recovery in the near term”.

In October, Queensland’s exploration scorecard reflected a difficult year for the state’s explorers with minerals exploration falling 31 per cent to $732 million for 2012-13.

But in the same week it was reported the Queensland government which is working to streamline the approvals process, granted 1400 exploration permits in seven days.

Audrill also stated that a “significant surplus of mining equipment in the sector continues” to impact the Perth-based company’s results, it expects its equipment hire arm to continue to be impacted by weaker trading conditions in the near term.

After entering into a trading halt on Tuesday, Ausdrill announced it will be reviewing operating performance as a result of “ongoing challenging market conditions” which are “weaker than expected”.

In an ASX statement released today the company said it will focus on improving performance by cutting costs.

Ausdrill said it recognises the forecast result is “not acceptable even in these challenging times”.

The diversified mining services company employs over 5000 staff worldwide.

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.