Hello again. Thank you ML173 for your wishes of a safe trip,...

Hello again. Thank you ML173 for your wishes of a safe trip, it’s nice to getting away during winter, old bones enjoy the sun. It is also great to see more posters, and different ideas coming into the BLY debate.

Well 26th of August, it’s like watching a good Two-up throw. Which way will it go?

Sad nobody could bring themselves to comment on BLY’s announcement of the 4/7 - Ceasing to be a substantial holder from MQG. Come on, that’s MQG, the Mother-ship, the people that took BLY to market in the beginning! How dare they be negative and post that they’ve sold stock! Oh well, I guess it easier to blame the Shorters for everything. By the way ML173, my advice to my friends was to wrap up their positions at .55c, as I believe anything below .50c before August would be too risky (in case I’m wrong).

Another good statistic from the Bureau of Resources and Energy Economics (BREE), “spending on mineral exploration in Australia declined by up to 27% between June and December last year”. Unfortunately these types of statistics are reflective and 6 months behind. As the industry situation has steadily contracted nothing bodes well for the August update or EOFY in December for BLY.

As you all know I’m a BLY SP sceptic (not the company just its share price and past management), and I don’t share the opinions of some that believe that the SP is going to recover quickly and all and sundry better jump on. I do believe there will be a recovery, but it won’t happen soon and what shape that leaves the company, when it happens (time, debt, utilisation and revenues all being the variables of concern). No one is posting how that recovery is going to take place, except saying that mining is not dead and that it’ll continue to happen, so therefore BLY at these levels is opportunistic, I actually don’t disagree with that logic. I only disagree with the timing of ones investment into BLY. I’ve harped on with “present operating market conditions” in which BLY finds itself. It’s worth noting another BREE comment. “BREE has identified 113 projects at the publicly announced stage with a total potential investment value between $121 billion and $171 billion, that’s up $29 billion and $37 billion since October, but there is no guarantee any will proceed in the current environment.” Very frank comments from within the industry.

There is no magic recipe on how BLY makes its revenue. Historically high utilisation and high revenues have been driven by the global exploration spend. That spend coming from predominantly money raised on the ASX/TSX by explorers and miners, and that level of money raised is now sitting at approximately 20% of its 2H2010 high. No money, no drilling, therefore no drilling, no purchasing of consumables. To change the level of drilling and sales, we need to see money coming back into the equity market for miners and explorers. At this stage it isn’t and what money is being spent on drilling is predominantly going to the cheapest tender (whether on mine, or exploration). The comment that alls right as BLY is now drilling more for majors is just window dressing. BHP and others have told all suppliers to look at decreasing their price schedules by up to 20% (on top of reduced rig utilisation).

Unfortunately, when that money starts to come in, BLY will not be the first cab of the rank for Clients to contract. Just focusing on the drilling division (one I’m more familiar with), they now have approximately 600 rigs parked up (I believe more if going on the Global competitors comments). We’ve seen through their data what it costed in debt to raise per unit revenue. It has been over a year that the first of these rigs would have been stood down. What maintenance has occurred in the time lapsed? BLY has cut cost on all expenditure and personal. To ramp things up will not be as simple as find a crew and drive out the gate. Many former employees would have moved on to other employment, so we go through the retraining of crews again. It is not just as simple as fuelling the rig up and turn pipe. From a boots on ground perspective, it doesn’t paint a good picture. Rigs are like boats, that is, B-ring O-ut A-nother T-housand. That’s why it will take BLY so long to take advantage of a recovery in the mining industry. Debt is affecting every decision now, maintenance will suffer, and they need a CR to have the working capital. The harder management squeeze to trim costs, the harder it will be to be in a suitable position to take advantage of an upturn in the market (when it comes). Don’t trim yourselves to the point of creating and Achilles heel in your ability to optimise your position.

Given that we are currently in my predicted 0.0500 range I’m happy that Chaddy36 has thrown down the challenge of “Is there anyone here prepared to say these wouldn’t be worth a $1.00 within 12 months?” well I do. BLY believes that as well when they announced their Revised Leverage Ratio to 2016 (see schedule in announcement). To get through the August update, the EOY Financials, the CR and the present operating market conditions, there’s little doubt BLY (in its present form) will be below $1.00 in 12 months.

Background to my involvement in BLY was I was asked what I considered an opportunity on the ASX. Knowing how BLY was then placed (from a position within the industry), my opinion was that the stars (which for them was debt, utilisation and pricing) were certainly aligning to see its SP fall. I have always given clear opinions on why. My first post being when the SP was at 0.980 was “Read DTQ 18th announcement written D J Fairfull current Non-executive Director, and also Non-executive Director of, Washington H. Soul Pattinson and Company Ltd - SOL. Given his bleak comments about the previous forecasting for DTQ, all drilling service companies should be looked at carefully before investing. I don't see any near future positives for BLY as they try to compete with the stated environment.” However it wasn’t until I posted at 0.935 “Hi bart2010, just for clarification purposes, I personally would not buy this stock. And as for a buy of the century, I believe it is not there yet. Happy to be laughed off the pages of Hot Copper, but I predict <.50c by years end (less we see a dramatic turnaround in the resource industry).” It’s disheartening when other listed drilling service providers give market announcements, way in advance of BLY, especially when they share the same working environment.

This is an inefficient company in this operating environment. Big does not always mean better, especially when faced with operations in numerous countries there is much duplication throughout, having many repeat costs that adversely affect its baseline pricing. A locally based competitor doesn’t have these things, and when costs are king, can and will be the first to get the work. It is not until we see improvement in the fundamentals and these contractors are soaked up that available utilisation will go onto BLY. There is much mine site work that requires safety management systems that only big contractors have. However this brings in its own set of cost and sustainability questions.

The driver to any recovery in BLY will be a recovery in money raised by miners and explores. For the foreseeable future, BLY will focus on a continually leaning of its operation. As I have said, time keeps ticking and time is BLY enemy.

From Gresham Advisory Partners I saw this; compared to 12 months ago. Availability of car parking in West Perth - 2 (maybe 3) laps of Ord St, to now, less than 1 minute, pick up any spot! Compared to 12 months ago a receptionist at an exploration company’s front desk was job secure, to now, replaced with door bell (or geologist!). Compared to 12 months ago, boys toys advertised “For Sale” salesman still ordering new stock, to now Jet ski’s/centre consoles are cheap. Soft indicators such as these are just as important in building that information based strategy.

If you want to pick the bottom of BLY follow the industry capital raisings on the ASX/TSX. Once they go up, the correlation to the recovery in BLY fortunes will be the same. Remember the lag, so there’s plenty of time to watch the grass grow before diving in. In the meantime, there will be endless false starts, and endless talk of when it’s going to happen. It’ll be like Microsoft bringing out a new Windows program, it’s coming this month, no next, it could be tomorrow, it’s been delayed, we’re waiting for an external analyst, we’ve found something wrong etc. etc. Watch for the P&D, it’s a traders stock.

As Red Dog posted, preserve your cash, but if investing into a drilling company is your desire look at MDI on the TSX. They’ve suffered a 30% fall to BLY’s 80% in 12 months, but their debt burden is negligible. If there is a listed drilling company, with similar operating structures to BLY, this is it. Recommend reading their Fourth Quarter Results for Fiscal 2013, especially the comments regarding their Australian results as compared to globally.

I wish everyone a fond farewell for a while, until next time, all the very best.