If mining services companies thought life was tough, it appears the worst is yet to come.
According to the Australian Bureau of Statistics (ABS), Australian mining exploration expenditure tumbled 31% in the March quarter to $318 million in original terms. Expenditure hasn't been this low since the March quarter of 2006, 11 years ago. It's also a 70% fall from the peak in June 2012.
Our two biggest mining states, Queensland and Western Australia suffered the most, with expenditure falling 32% and 12%.
Perhaps not surprisingly, expenditure of exploration for coal and iron ore both fell by more than 40%, particularly given the commodities' respective price falls.
If you're banking on the likes of Monadelphous Group Limited (ASX: MND), UGL Limited (ASX: UGL), RCR Tomlinson Limited (ASX: RCR) and MACA Ltd (ASX: MLD) to see a pickup in business, and a return to mining boom record revenues and profits, think again. The prob
The problem is that resource projects take many years to go from exploration to production. A lack of exploration expenditure will translate into less projects getting into production and less contracting work over time.
As we've written many times, it's not just a lack of contracting work, but the work that is available will likely be at much lower margins for the contractors. Don't be fooled (lower case 'f') by companies boasting of huge order books of work either. As Maca found out with Atlas Iron Limited (ASX: AGO), contracts can be amended or disappear into thin air and there's very little contractors can do about it.
You may have seen the disclaimer "past performance is no indication of future performance" – but when it comes to mining contractors – it really does apply. Time for investors to look elsewhere.
