Negative outlook weighs on Boart

30 Aug 2012, 7:16 pm   -   Source: AAP

Shareholders wiped nearly $406 million off the market value of Boart Longyear in a horror day for its stock

Almost $406 million was wiped from the market value of Boart Longyear after the company downgraded its earnings guidance and provided a negative outlook for the mining industry that it services.

Shares in the drilling services company slumped 88 cents, or 37 per cent, to $1.50, despite reporting a record half year profit.

The share decline cut Boart's market capitalisation to below $692 million after starting the day at $1.1 billion.

Boart on Thursday reported a 32 per cent rise in net profit to $US98 million ($A95.11 million) for the six months to June 30, from the same period in 2011.

It was the best result in the 120-year-old company's history, but Boart also cut its earnings guidance.

It now expects earnings before interest, taxes, depreciation and amortisation (EBITDA) for its full year at between $US360 million and $US390 million ($A349.40 million and $A378.51 million).

This is a sharp drop on previous guidance of $US460 million ($A446.45 million).

Revenue is also forecast to be down, at about $US2 billion ($A1.94 billion), from past guidance of $US2.3 billion.

That would point to results more in line with last year.

Chief executive Craig Kipp said there had been a flight to safety and sure returns in the mining industry.

The focus was now on low-cost projects that companies were often already operating.

That was bad news for a company like Boart, which supplies mineral drilling services and equipment, relying on miners to hire the company to explore for new mineral deposits.

The company with its 1200 drill rigs in 40 countries is seen as a bellwether of resources capital expenditure.

"Global uncertainties like the European debt, decreasing growth in China, restrictive financing conditions, and the upcoming US elections are driving our mining customers to be more cautious with their capital and direct it to their higher-quality assets," Mr Kipp said in a statement.

The indications of a slowdown included more drilling rigs coming off properties where, in good times miners would persist longer on exploration sites.

The company's mine water services (removing bore water from mines) and drilling product sales were going well, driven by high demand in Africa and Latin America, Mr Kipp said.

Morningstar analysts recommended the company diversify from drilling for minerals and into infrastructure and environmental drilling.

In a note to clients, Morningstar said its earnings forecasts, valuation and recommendations for Boart were under review as a result of the downgrade.

"The volatility on global financial markets may result in a pullback in exploration mining, which will impact demand for drill rigs," the analysts wrote.

Boart declared an interim dividend of 6.4 US cents (6.21 Australian cents), up 33 per cent.

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