More reminders of the weakening in earnings prospects from from the resources sector.
Friday saw downgrades from Orica and Santos.
They followed the downgrade (in production and revenue terms) from Woodside on Thursday.
Orica’s problems stemmed from the mining industry and its continuing headache, Minova, which services the underground mining sector.
Orica investors were surprised by the news and the shares fell to a four year low in the wake of the downgrade.
ORI 5Y – Downgrade sends shares to four year lows
Orica shares fell 13.4% to $18.19, against a benchmark index fall of half a per cent, the lowest the shares have been since May 2009, when the market was emerging from the depths of the GFC plunge.
Orica shares opened at $21.11 on Friday and fell as low as $17.80 during the session before closing slightly higher.
It was a loss which wiped a $1 billion off the value of Orica.
In its statement from the ASX, Orica said group net profit after tax before individually material items is now expected to be around 10% lower than the 2012 result of $650.2 million.
Orica said the profit fall was due to weak market conditions in Europe and North America and high costs associated with its ground support business, which provides products and services for tunnelling and underground mining.
Minova is now expected to break even, in earnings before interest and tax (EBIT) compared with earlier guidance of $17 million to $25 million and $109 million in fiscal 2012. That is a substantial worsening in performance.
Orica’s Bontang ammonium nitrate plant in Indonesia is also predicted to yield a weaker EBIT, because of unexpected production site issues and market conditions in the country’s coal mining industry which has been hit by lower demand and pricing.
As well, the resources downturn has resulted in weaker global demand for explosives and sodium cyanide which are also affecting bulk explosives volumes and costs.
But Orica was optimistic of a turnaround in 2014, as performance issues are addressed in the ground support business and European operations.
‘‘A general review of productivity initiatives and cost reduction opportunities is ongoing across all areas of the Orica business,’’ Orica told the market. Investors know that there will be more bad news to come with job losses and possibly asset impairments when Orica rules off its year at the end of September.
And in the energy sector, oil and gas group Santos shares dropped 52c, or 3.7%, at $13.74, after cutting its full year production forecasts because of bad weather, production problems and faster than expected field decline.
Santos said it had cut its production forecasts due to problems caused by supply, weather and infrastructure.
The company has now reset its 2013 production guidance to 52-55 million barrels of oil equivalent (mmboe), down from 53 to 57 mmboe previously.
It said the revision was due in part to deferred oil and gas production from the Chim Sao oil field in Vietnam due to problems with its offshore production and shipping facility.
While other factors contributing to the decline included natural field decline in Sangu, off Bangladesh, and deferred oil production in the Carnarvon Basin in WA, due to the wet weather in June.
The fall seems to have been an over-reaction given that second quarter revenues at $797 million were higher than the same quarter of 2012 and higher that the March quarter of this year. That left revenues for the first six months of this year up $17 million at $1.510 billion. That’s unlike Woodside, which saw revenues fall in the first half of this year.
On Thursday Woodside confirmed that it had cut its 2013 production target because of maintenance at a couple of fields and problems at its Pluto LNG operation off the North West WA coast.
Woodside shares rose 27c on Friday to $37.73, higher than before its production report was released on Thursday.
OIl Search is due to release its first half and the second quarter production report this week.
