Grim warning for mining services firms

As the mining boom shrinks, mining services firms will face the brunt of it and many companies could go under in 2013.

That was the message in a report by insolvency firm FTI Consulting, who added small miners that are not producing yet could also be at risk, AAP reported.

“Insolvencies in the mining services sector can be expected to risk in the coming year,” the report said.

“Although the mining sector is not a large overall employer in Australia, early signs of the mining investment boom drawing to a close can be seen in the dramatic rise in the unemployment rate in Western Australia, rising from 3.9 per cent in March 2012 to 4.7 per cent in March 2013, or a 20.5 per cent rise.”

FTI senior managing director Michael Ryan said 2013 would follow 2012’s trends in terms of the number of insolvencies.

“With mining and mining services, that slowing down could result in an increase in insolvencies and the retail sector is still pretty flat,” he said.

“I think it will match or exceed last year.”

The firm’s warning comes in the wake of a number of profit downgrades in the mining services sector in the recent past.  

This includes UGL, Boart Longyear and Worley Parsons, among others. Ausdrill shares dipped in April after the contractor said profits would fall.

Larger companies like Transfield Services contracted to maintain and service mines and oil and gas projects will not be affected by the mining downturn, according to CEO Graeme Hunt.

Construction company Leighton Holdings’ chief executive Hamish Tyrwhitt said the company is not worried about mining services companies downgrading profit forecasts.

He said the company has different business ventures to turn to if the mining boom ended and also noted the cyclical nature of the mining industry.

“The benefit of the Leighton group is we have incredible diversification across geographic range and across sectors,” he said.

“It’s just not in mining but in company development (and) infrastructure.”

The fact that the company operated on volumes the company moved instead of commodity prices also worked in its favour.

But Ryan said smaller companies would be affected as it is not as easy for them to diversify their business and because the companies had huge debts that need regular cash flow.

He said it will take time for companies to feel the full effects of the mining slowdown and the falling Australian dollar will not affect business decisions yet.

“In Western Australia and Queensland the contraction and slowdown is evident in the mining space and this is flowing on to the mining services guys.

“Unless things improve in terms of commodity prices or sentiment in the mining sector, you could see a fair bit of fallout.”

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