Boart Longyear shares crash 30%

Yet more signs of the end of the mining boom

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 30, 2012 2:31 pm AEST

Boart Longyear (ASX: BLY) shares have dived by more than 32%, after the global drilling firm cut guidance, citing limited visibility.

The company stated "We are seeing a mining industry in a state of flux. 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."

Boart Longyear is one of the world's leading providers of drilling services and products to the mining industry, but it appears to also be suffering from falling commodity prices as its customers cut back on spending. We've already seen BHP Billiton (ASX: BHP) cut a number of its mega-projects, while Rio Tinto Limited (ASX: RIO) has also flagged a review of its expansion plans.

Just yesterday, the company reported an interim net profit of US$98 million, up 32% over the previous period. All well and good, but looking ahead, the company is forecasting a flat 2012-13, guidance which sent the shares tumbling.

Boart's much smaller competitor, Ausdrill Limited (ASX: ASL) has forecast a completely different outlook. Ausdrill is targeting a 15% increase in revenues, while also reporting the outlook beyond the 2013 financial year remains strong in its key sectors. The contrast couldn't be greater, although admittedly Ausdrill also provides contract mining services.

Exploration drilling is usually one of the first casualties when miners start cutting their capital spending, as they focus on their existing mining operations.

Boart's warning comes as iron ore prices continue to plummet, trading at around US$90 a tonne overnight. Despite the rapid falls, Fortescue Metals Group's (ASX: FMG) CEO suggested today that he expects iron ore prices to suffer sharp falls before rebounding to US$120 a tonne in the short-term.

The Foolish bottom line

Only time will tell whether iron ore prices recover, but with other commodity prices falling as well, many mining services companies face difficult times ahead.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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