The profit of suppliers to the mining industry is of course tied to the profit of the mining industry. To invest in the mining industry, you may choose instead to average things out, and invest some in those who supply the mining industry. How are they faring?
Here is a link to a report that Boart Longyear is cutting estimates of 2012 income and profits. While the body of the article is journalistic gloom & doom, the final paragraphs note the good news:
Boart Longyear continues to expect a 15% on-year rise in global exploration spending in 2012, Mr. Kipp said. “The large majors are also in a good cash position, their balance sheets are in good shape,” he said, suggesting acute cutbacks in exploration work may be unlikely. Boart Longyear declared an interim dividend of 6.4 U.S. cents, up a third on its 2011 interim dividend, and said net profit rose 31.9% on year to US$97.7 million in the six months ended June 30.
So why the gloom? Maybe they are just backtracking somewhat from overly optimistic projections:
Boart Longyear, which specializes in drilling services and products, Thursday cut its guidance for earnings before interest, tax, depreciation and amortization by up to a fifth, forecasting a 2012 EBITDA of between US$360 million and US$390 million, down from an earlier estimate of US$460 million. The ASX-listed, Utah-headquartered company also trimmed its capital expenditure budget 8% to US$275 million and its expected revenue 13% to US$2 billion. Chief Executive Craig Kipp said uncertain market conditions had clouded the outlook for the business. Iron ore prices have fallen by a third in the past two months, to their lowest level since November 2009, while other commodities are also trading near multi-year lows. “We are seeing a mining industry in a state of flux,” said Mr. Kipp. “Global uncertainties like the European debt, decreasing growth in China, restrictive financing conditions and the upcoming U.S. elections are driving our mining customers to be more cautious with their capital and direct it to their higher quality assets,” he said.
So mines are looking for higher quality assets and suppliers for more precise estimates of revenue and profit. The question facing us as potential investors is: will greater reality in a company’s estimates, make for a more realistic share price, and which way will the share price move as mining moves or fails to move?
Certainly with Malema shouting about civil insurrection and bringing the South African mining industry to its knees, and Peru having many more thoughts about big mines, maybe investing in a Utah-based company is not such a bad idea. Even Romney might approve and do things to make it easier for them to surge along with all the other jobs and economic advances he promises. Kind of scary to think an investment decision may be made on the basis of such factors.
