The good times appear over for Australian mining services companies with NRW Holdings losing up to $80 million in revenue due to BHP Billiton slashing a port project.
NRW on Monday said it would lose an estimated $75 million to $80 million as a result of BHP’s decision to reduce the scope of works for the Port Headland inner harbour project in Western Australia.
But NRW insisted the money it stands to lose would not impact its full year guidance of 15 per cent revenue growth in fiscal 2013.
The $120 million contract that has been cut by about two-thirds was for an upgrade of iron ore blending yards at Port Hedland.
BHP is expanding Port Hedland’s inner harbour as part of plans to expand Western Australian iron ore output to 220 million tonnes from 179 million tonnes in the last year.
It would not comment on the NRW contract or a media report that it would pay as much as 10 per cent of its value to get out of it.
But the mining giant did say it was focused on reducing operating costs and non-essential expenditure.
Earlier in September, NRW lost $100 million in revenue and cut its profit forecast when Fortescue Metals Group put a halt on its expansion.
Fellow contractors Macmahons and Boart Longyear have both issued profit warnings in recent weeks, losing nearly 40 per cent in share price values in one day, despite posting record profits in August.
NRW’s shares fell by nearly four per cent to $2.25 on Monday.
Morningstar senior equities analyst Ross MacMillan said the reduction in projects was a new reality for the sector, pointing to the mothballing of BHP’s $30 billion Olympic Dam expansion and $20 billion outer harbour project at Port Hedland.
Those projects and other delayed infrastructure plans in Queensland’s coal industry will kill large amounts of pipeline work for contractors and jobs and cash for local economies.
“We think the mining service companies have got a fairly tough road looking forward to the next 18 months, perhaps as long as the next three years,” he told AAP.
“They have had a pretty good past decade when commodity prices were soaring.”
The power balance has swung from the mining services companies back to the big miners, who are pressuring them to lower margins due to falling commodity prices an a slowdown in Chinese growth to its lowest level since 1999, analysts say.
Patersons Securities industrials analyst David Gibson said companies such as NRW and Macmahon were more exposed to a downturn because civil construction provided a high proportion of their earnings.
“That’s the work that’s gets turned off when things get slowed down,” he told AAP.
Other companies such as Ausdrill or MACA had more robust, resilient business models linked to the production cycle of mining.
Companies such as NRW and Macmahon would be vulnerable to a re-setting of prices at lower levels with miners, he said.
Some mining services companies could pursue work in other sectors, such as Monadelphous, which is involved in civil infrastructure projects including building water treatment plants.
