PERTH (miningweekly.com) – Australian miners were not the only...

PERTH (miningweekly.com) – Australian miners were not the only ones suffering in the current economic climate - services providers are also facing cost and market pressures, advisory firm Deloitte has reported.
In its new Mining Services Index, published on Wednesday, Deloitte pointed out that during the three months to March, nearly half of the indexed mining services sector reported profitability below guidance or market expectations, with the market capitalisation of these companies dropping nearly A$940-million.
“Many participants who reported earnings above expectations either benefitted from a diversified contract portfolio, including projects outside the resources sector, or they service niche subsectors,” said Deloitte financial advisory services partner Nicholas Harwood.

“Cost agility has become a key to preserving growth, as the competitive tendering environment continues to depress margins and increase project lead times despite a solid pipeline of opportunities.
“A number of corporate failures in the sector may also lead to financiers reviewing the structure of performance guarantee facilities. Cash-backed guarantees may emerge and create working capital pressures.”

Deloitte Access Economics partner Stephen Smith said a range of macroeconomic factors were also disrupting Australia’s miners and, by extension, the mining services sector.

“Prices and export volumes for both iron-ore and coking coal are certainly an issue, as is the well documented infrastructure construction cliff,” he said.

The data revealed in the latest index mirrored Deloitte’s previous research, which suggested that mining investment had softened during the three months to March, with investment likely to drop further in 2014/15.