Key mining services players are still on the back foot
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Although things are picking up in the Australian resources sector, some of the smaller mining services companies are still struggling to bring cash in the door.
Watpac (ASX:WTP) revealed last week that it is considering selling its mining business after failing to secure two major projects.
The company provides mining services including project management, contract open-cut mining, drilling and blasting, and mineral and processing facilities for the iron ore, gold, mineral sands and coal sectors, among others.
Although the mining services business only accounts for about 5 to 10 per cent of the group’s total revenue, it has become a financial drain on the company.
Watpac expects to book an underlying net loss before tax of $3 million to $5 million for the 2018 financial year.
“We’ve got about $75 million worth of plant and another $10 million or so worth of equipment and spares and about $8.5 million worth of debt in that business,” boss Martin Monro told Stockhead.
“There is a reasonable amount of money allocated in that business and we are not getting a return on it.”
Part of the reason Watpac has not been getting the work is the company refuses to undercut others in the market.
“What we are not going to do is bid work at rates that we just do not think are economic,” Mr Monro explained.
“There is some anecdotal evidence that conditions are improving, but we are not going to buy work just to keep the wheels turning.”
Watpac is considering all of its options including a full exit from the mining business and the sale of some of its equipment.
Clawing back cash
Drilling contractor Swick Mining Services (ASX:SWK) says the industry needs pricing rates to pick up to make it more profitable.
“While rig demand is on the increase, Swick is carefully considering its strategies for asset allocations to its client group,” managing director Kent Swick told investors when the company released its half-year results in February.
“Clearly the industry needs an uplift in rates and Swick will work with its clients as renewals present to secure appropriate rates to ensure target financials are achieved.”
Mr Swick said the company is working to “claw back some of the very significant savings” it offered its clients as far back as 2013.
During the first half of the 2018 financial year, Swick cut six executive and senior management jobs to save $2.1 million annually and reduced its capital spend by $1.4 million.
The company also pulled 13 drill rigs from three mines because they weren’t making enough money.
Here’s a list of ASX mining services stocks and their 12-month share price performances at the end of February: