forecast for fy13 year-end, page-31

Hey Mike,

I beg to differ on the mining services industry being squeezed. The miners are simply moving into a different phase, from exploration into development and asset extraction. Now all that means is that companies in the MS (or the METS) sector which dealt with extraction, logistics or some sort of greenfield operations will be hurting. While for others, namely in the asset efficiency, utilisation and productivity the market pie has just gotten bigger. LCM operates in brownfield operations, in other words in the efficiency, utilisation and productivity phase so the only squeeze they'll feel is the decrease in margin due to increase in competition. But if the pie was a 100 cm wide before, we're now looking at a 130 cm wide pie, that'll grow significantly over the next three years as the actual mining industry consolidates.

I've never seen so much tendering activity in the METS sector to date, and while the procurement departments here and in other top Aussie mining institutions do their thing with squeesing rates and margins the opportunity is still there. The piece of the pie has gotten bigger and it's up to the specialist and lean organisations to snap that up.

I'll give you an example. I know for a fact that for some of the minor (<$5m) projects companies like MND will not compete for, as they try to build longterm relationships and push for some $50m through the door. Within the METS space there are maybe 2-3 top truly specialist players who specialise in asset efficiency, asset procurement and productivity (and training for that matter). Those are highly in demand, and LCM has it all.

I urge you to read into the matter, BIS Schrapnel has recently released (Nov 2013) a report regarding the forecast of mining expenditure:

http://www.lnggroup.com.au/industry-updates/417-mining-boom-continues-as-industry-shifts-phase.html

as you'll see the capex that was laid out for exploration will significantly decrease. But all that means is that instead of deploying capex, they'll shift all costs to opex to deliver better efficiency with their operations.

another confirmation of this logic here:
http://www.miningiq.com/mining/white-papers/mining-business-outlook-report-2012-2013/?MAC=austmine#JoinForm

Ok, now that we've covered Australian mining opportunities, let's move our sight across the ocean. Vietnam, Kazakhstan, Mongolia, Chile and even Canada.. High quality assets with poor delivery. I've noticed LCM has already started a move towards international project delivery, but I see a lot of opportunity for Australian METS to fill the empty niche created there. Read more here:

Demand for Australian METS in Chile:
http://www.austrade.gov.au/About-Austrade/News/Latest-from-Austrade/2013/Shift-to-underground-mining-in-Chile-presents-opportunity-for-Australian-METS-companies

Demand for METS and operational efficiency in Canada:
http://www.bloomberg.com/news/2013-12-09/canada-s-labor-shortage-threatens-50-billion-lng-plans.html

Ok. with all the above logic, we're forgetting why this is a down cycle for mining exploration.
Australia became too expensive to conduct exploration and initial mine development. But does Canada/Russia/Kazakhstan etc have the same capacity and transportational capabilities that Australia currently has? Not really. China is growing, that's a fact. I'm surprised when pseudo-economists quiver with fear as China is "slowing in growth". Wait, so 7% YoY GDP increase is SLOW? since when? Second. People get lost in the numbers - 7% of 100 is 7, so the next year 7 percent of the 107 is.. 7.49.. and the year after that 7% is 8.01.. So the actual growth, or the real growth I should say is there. It's just that someone somewhere interpreted the numbers the way he/she wanted to interpret them.

I actually personally follow the main indicators before reading any "analytics" in order not to poison my mind with preconcieved notions. I urge you to do the same, check China's real growth in GDP, check their building statistics, their demand for top commodities. They are flat in percentage terms but growing in real terms.

In addition, I would suggest reading the following article regarding China's increased demand for Australian commodities, as economists have yet again overestimated the amount of crash and burn effect - http://www.theaustralian.com.au/business/china-forecast-a-boost-for-mining/story-e6frg8zx-1226531660478

Look gentlemen. The writing's on the wall. I've read so much toxicity in the news and am astounded how it affects all of us. The reality is, there's always going to be a massive demand for METS. The question is whether the METS company is agile enough to shift when the market shifts and whether it has enough market know-how and expertise to deliver on its promises. I let you make the decision whether LCM fits that profile.

cheers,
Greg