Boart’s Surprise Upgrade

Just as Orica is seeing some upturn in demand for its services from the mining industry, so too is drilling services group, Boart Longyear seeing improved interest from the drilling sector.

So much so, that a rare glimmer of good news in a trading update yesterday bumped the company’s shares up 2c, or 6%, to 35c in trading yesterday.

The company upgraded its annual earnings and revenues forecasts saying its operations saw improving demand in the first three months of the year, with its drill rig utilisation and product backlog on the rise.

The company said it now expects earnings before interest, tax, depreciation and amortisation (EBITDA) are expected to rise by 76% on 2009 to $US195 million this year.

It had forecast EBITDA of $US170 million in February, so the expectation is for a solid rise.

The company expects revenue for the year to December 31 to be up 33% at $US1.3 billion for the year, against the previous guidance of $US1.125 billion.

‘‘We are experiencing a strong mineral exploration recovery across all our global geographies,’’ Boart Longyear chief executive, Craig Kipp, said in the statement.

He said that a tightening of cost controls in 2009 would mean the increase in revenue would see a strong operating leverage in 2010.

The company recorded a net loss for calendar 2009 of $US14.9 million as the credit crunch and recession cut exploration by mining companies.

Utilisation of Boart’s drill rigs is expected to exceed 70% by midway through this year and could hit 80% in the final quarter.

Over 2,000 full time employees have been hired by Boart since the lowest levels of mining activity were seen in 2009 (a good indicator).

Boart says its lifting prices on new contracts because of rising demand and the higher rig utilisation.

But it said "Margins remain under pressure as the Drilling Services segment continues to work on lower priced contracts signed during 2009.

"Also, the Company continues to pre-spend in hiring, training, material purchases, and fleet mobilisation to support the incremental demand as the business improves.

"Pricing for new contracts continues to improve, slowly moving up from the 15 percent to 20 percent price reductions taken during the 2009 global financial crisis."

The company said capital spending will grow by $US50 million to $US150 million this year, with a focus on organic growth over acquisitions because the latter don’t add value in the drilling sector, the company said.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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