The positive vibe permeating the mining services sector this reporting season was wiped out by a wave of selling yesterday after the world's biggest driller gave a gloomy prognosis.
Investors tore more than $400 million, or 37 per cent, off the value of Boart Longyear after the company revised down its guidance for this calendar year.
That was also bad news for WA-based global drilling products supplier Imdex - Boart is its biggest customer - which lost 19 per cent of its value to hit a 12-month low in trading about six times usual volumes. The market even harshly marked down big contractors at the production end of the sector, who in the past few weeks made bullish forecasts for the year ahead.
Boart Longyear chief executive Craig Kipp said earnings and revenue for the year ending December 31 were now estimated to be in line with the company's 2011 results.
"We are seeing a mining industry in a state of flux," he said.
Mr Kipp said global uncertainties were creating cautious customers who were directing their capital to their higher quality assets.
"Given mixed market conditions, our visibility beyond the near term is very limited," he said.
Boart Longyear remained optimistic about long-term growth prospects for the industry, he said.
The Utah-based, ASX-listed company recorded a 33 per cent increase in net profit to $US98 million for its first half. It operates 1200 drill rigs in 40 countries and is highly exposed to exploration activity. Analysts said a recent sharemarket rally in the sector had turned out to be fragile.
Linking production stage companies to potential exploration cutbacks was thought to be tenuous.
Ausdrill reminded investors when reporting results on Wednesday that exploration made up only 11 per cent of its revenue. But its shares were among the hardest hit yesterday.Andrew Broad, managing director of contractor VDM and a former Ausdrill executive, said the market tended to lump all mining services companies together when they were quite different. "They all look at exploration drilling as being a bit like the canary in the coal mine," he said. But that no longer held true he said, particularly in WA, where there were longer lead times to production because of required regulatory approvals.
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