View Comments
Driller sees upside after panic
Driller sees upside after panic

The head of the world's third-biggest drilling company believes the outlook for the mining industry looks much better now the "wave of panic" which hit global markets a few months ago has subsided.

Foraco International chairman and co-chief executive Daniel Simoncini said project delays announced by BHP Billiton and Fortescue Metals Group in August had not hit mining service providers as hard as first thought.

The share prices of contractors also took a severe blow that month when the biggest driller, Boart Longyear, downgraded earnings and delivered a gloomy outlook.

"The market has contracted, that's a fact and everybody knows it, but not in the proportion that people would have feared at the time of Boart Longyear's statement," Mr Simoncini said.

"There was a wave of panic starting from Australia throughout the world following the BHP announcement that they would stop or defer the large capex projects.

"We begin to see quite tangible signs of stabilisation in our customer base. We feel a bit more comfortable compared to three months ago."

Mr Simoncini expected business to pick up early next year.

Foraco's $US103 million ($99 million) revenue for the September quarter was up 25 per cent from a year earlier but net profit dropped to $US7 million in a result hit by project cutbacks in Chile.

The $C227 million ($218 million) French company is listed on the Toronto Stock Exchange. Like Australian mining services counterparts, the stock has taken a heavy hit since mid-year and is down 30 per cent for the year to date.

Foraco is set to increase its small exposure to the Australian market once a $60 million acquisition of South Australia's John Nitschke Drilling is completed as expected this month.

The deal will strengthen Foraco's position in Pilbara iron ore mining and relationship with the majors after losing work in the cutbacks. JND has long-term drilling contracts with BHP and Rio Tinto in the region, and operates a workshop in Newman.

The South Australian contractor also gives Foraco access to Eastern States markets, including Queensland's coal seam gas projects. "You cannot expand east from Perth, you would be better transnational which is why we bought this company," Mr Simoncini said.

JND generated about $47 million revenue in the past financial year, with more than 50 per cent coming from iron ore. JND chief executive Jonathon Nitschke will join Foraco Australia as a general manager.

The French firm established its beachhead in Perth three years ago when it bought a majority stake in Mosslake Drilling Services, founded by Ken Macleay and Pete Fischer.

Foraco's revenue from the Asia- Pacific, including Australia, provides about 9 per cent of its revenue. Mr Simoncini wants to double that.

"We do feel there is a lot of room for us to expand within the market and developing our own business model, which is based on quality rather than volume," he said. HEAVY HIT 30 The percentage slump in Toronto-listed Foraco's share price this year

We feel a bit more comfortable compared to three months ago."Foraco International chairman and co-chief executive Daniel Simoncini