MAJOR Drilling airlifts a rig in Indonesia. Major specialises in drill contracting in remote and inhospitable regions, a niche in which the company claims 80 per cent marketshare.

MAJOR Drilling airlifts a rig in Indonesia. Major specialises in drill contracting in remote and inhospitable regions, a niche in which the company claims 80 per cent marketshare.

Drill Co's Report Greenfield Retreat

Issue 22, November 2012

Drilling contractors, a sensitive indicator of confidence within the mining industry, are reporting lower sales and laying-off staff due to falling rig demand, with greenfield projects and junior miners leading declines in drilling activity.

US-based Boart Longyear, which invented diamond core drilling in 1888, on Monday revised its earnings guidance downwards due to charges associated with slashing 20 per cent of its costs. The drilling industry, which relies on a largely itinerant workforce, is notorious for aggressively removing staff with each downturn.

Last month, Boart overhauled management following a profits warning in August. Chief executive Craig Kipp, who has since left the company, warned that customers were directing money to their “higher quality assets.”

Marseille-based Foraco has likewise reported sharply contracting demand in Chile and overall idle rates of 34 per cent. In September, the company bought John Nitschke Drilling, a privately-owned Australian contractor focused on iron ore in the Pilbara. The acquisition has lifted Foraco’s rig count to 305 from 290, compared to 725 for Major Drilling, the industry leader alongside Ausdrill.

Major Drilling has said that whilst senior producers remain committed to resource replacement efforts, juniors have become “more and more cautious in their spending, given the difficulty in accessing capital.” Major’s shares have lost 27 per cent in the last six months, compared to 49 per cent for Foraco and 59 per cent for Boart Longyear.

Drill rigs are often tied to projects under long term contracts, but pricing typically depends on variable levels of activity, leaving contractors vulnerable to volatile commodity prices and equity markets.

Swick Mining, which generates 90 per cent of its revenue from underground drilling in operating mines, has been one beneficiary of the mining industry’s apparent retrenchment from green to brownfield sites. The company has won new contracts with Lundin Mining, contributing to record quarterly revenue, with 62 of its 75 rigs in operation. Cash rich explorers are also likely to benefit, as higher idle rates lower rig costs.

Major Drilling will report quarterly results on Tuesday.

Juniors are “more and more cautious in their spending.”
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