Thought I should change the subject and get things back on...

Thought I should change the subject and get things back on track. Also a great attention grabbing header don't you think. Transfield was knocked back at $2.75 12 months ago (Doh!) and once the waste division is cut loose I would think Minproc gets whacked unless the share price gets back above $1.50 (after spin off).

cheers


STRUGGLING WITH COSTS
Mining services industry vulnerable to takeovers
The mining services industry is ripe for takeover as it rides the commodity boom but struggles under the burden of rising costs.

Author: Michael Flaherty and Tom Miles
Posted: Thursday , 10 Jul 2008

HONG KONG (Reuters) -


Riding the commodity boom but struggling with costs, the mining services industry looks headed for a batch of takeovers.

While the sector is no stranger to acquisitions, slowing growth has buried stock prices of many firms this year, making the companies more affordable to prospective buyers.

One deal already underway is a A$436 million ($419 million) hostile bid by Australian construction firm Macmahon Holdings Ltd for mining and utilities contractor Ausdrill Ltd , as Macmahon seeks to bulk up as its key mining customers also merge.

Drilling supply company Imdex Ltd , earthmover Emeco Holdings , and engineering firm GRD Ltd are among other companies cited as top takeover candidates in a research note by Austock analysts.

GRD's shares had dropped nearly 60 percent in the last three months to Wednesday's close and Imdex had shed nearly 30 percent, while Emeco had eked out a 3 percent gain.

Austock also sees smaller targets in mineral testing firm Ammtec Ltd and construction company Brierty .

Consolidating the Australia-centred mining services group would give it enough scale to handle contracts from the new crop of recently merged mining giants.

Private equity firms have also taken notice of the industry, attracted by its steady cash flows, low valuations and indirect exposure to the commodity price boom.

"We continue to look for investments in areas linked to natural resources, such as mining services," said Daniel Carroll, managing director in Hong Kong for U.S. buyout giant TPG Capital [TPG.UL].

Carroll, speaking to delegates at Boao Forum's International Capital Conference in London last month, mentioned steel and coal as areas he was interested in.

COMMODITY BOOM

Commodity prices from iron ore to copper to coal are soaring on demand from Asia's booming economies. The Reuters/Jefferies CRB index <.CRB>, which tracks 19 commodity futures, is up 25 percent so far this year.

The demand has spurred greater need for the consulting, engineering, transport, drilling and logistics firms.

Consultant Metals Economics Group expects global nonferrous mining exploration spending to soar 25 percent this year to $13.1 billion. But the uptick in business has not always translated into a bump in stock price for the service companies.

"Not all of them have managed to make money in the mining boom thus far because they do have cost pressures - mainly manpower," said Tim Goldsmith, global mining leader at PriceWaterhouseCoopers.

He said costs could be roughly split into three P's: people, power and procurement. All three were being pushed up, with a shortage of skilled and unskilled labour, high diesel costs and historically long lead times on mining equipment orders.

Large haul trucks and their huge tyres, which used to arrive within 4 or 5 months, now take two years or more. Goldsmith said some companies were even taking the risk of ordering equipment before they had clinched the final agreement on a project.

One investment banker in the sector said these pressures would push companies towards acquiring rivals and suppliers.

"Scale gives you pricing power and equipment is in such short supply at the moment, if you know someone with a good order book, it makes sense," he said.

Examples of big mining mergers include Xstrata buying Canadian nickel producer Falconbridge in 2006. Miner BHP Billiton is trying to buy rival Rio Tinto for $170 billion.

U.S.-based drilling services company Boart Longyear was bought by private equity in a deal others would like to copy.

Boart's management teamed up with Advent International and Bain Capital to take it private from mining giant Anglo American in July 2005. A consortium led by Macquarie Bank bought 50 percent in September 2006, valueing the firm at A$547 million.

When they listed the firm in April 2007, they raised A$2.35 billion, Sydney's biggest flotation for a decade and a lucrative exit for private equity.

TAKEOVER CANDIDATES

In Austock's analysis, key takeover factors were operations in niche markets, low valuations, profit disappointments for still attractive businesses, and synergies with a possible acquirer.

"Consolidation to date in mining services has been focused on unlisted companies," says the Austock note, published earlier this month. "The market price pull back has made listed companies better value and we expect further consolidation."

Among the companies that makes Austock's "takeover assessment table" is Boart Longyear. From January to April its stock lost nearly half its value, before rallying to the low A$2 range in the last few months.

Austock highlights Imdex, a supplier to Boart which provides drilling fluids and down-hole instruments, as a takeover stock. Its shares have slumped from an all-time high of A$2.76 in December to A$1.6.

Also highlighted is Perth-based earthmoving company Emeco Holdings, a private equity-backed company whose shares are under pressure, and engineering firm GRD, which has plunged 76 percent since rejecting a takeover bid worth up to A$529 million ($452 million) from rival Transfield Services last August.

(Additional reporting by Eleanor Wason in London; Editing by Kim Coghill)