Boart Longyear responds to 'unprecedented market uncertainty'

TORONTO (miningweekly.com) – Drill-equipment manufacturer and services provider for the mining industry Boart Longyear on Tuesday told Mining Weekly Online that the current market faced unprecedented uncertainty, forcing itself and its clients to reinvent themselves to adapt.

CEO Craig Kipp said the market was shifting in a significant way, with the only signals in this unclear market being that growth at its large clients had all but come to a halt and exploration had either been stopped or deferred.

“We observed a ‘flight to quality’ by the major players in the mining market, prompting them to pursue high-quality, low-cost projects. They are typically placing development projects on hold until the market improves again,” he said.

This trend had also resulted in miners pushing their existing operations deeper into the earth, creating a need for increasingly skilled drill operators and specialised equipment.

An example of how the marked had moved could be found in Africa. Kipp explained that when one looks at exploration, a significant amount of exploration work was traditionally undertaken by junior explorers, but with tougher market conditions restricting funding for such operations, larger companies in recent times had taken over the role of exploring for resources.

“But, even this had now tapered off,” Kipp said, noting that the exceptions might be Zambia and the Democratic of Congo where the company saw strong demand for drill equipment and services.

INNOVATION

The Sydney-listed company during 2011 introduced a number of initiatives to tighten control of costs and operations. The result was implementing a high-technology information exchange system – a first for a drill equipment manufacturer and services provider, according to the company.

Boart Longyear now relies on a custom-built software solution from specialist Oracle, which had enabled the company to be in real-time contact with every working part of its business, from human resources, to finance and operations. This had, in part, helped the company achieve its strongest operating performance in its history during the first half of the year.

“The information system allows us to take immediate action in this uncertain time. We are able to almost immediately ramp up production, mobilise employees or curtail operations as the constantly shifting market dictates.

“It has helped us cut costs,” Kipp said.

He also noted that from the time he took up the position as CEO, in 2009, he had placed a significant amount of emphasis on continuing the company’s research and development (R&D), even through the downturn of the global economy.

The company currently has 12 different new products on test at sites around the world, after which they would be considered for market introduction. He said mining companies’ current endeavours for cost optimisation were driving demand for specialist equipment.

H1 RESULTS

Kipp said the market uncertainties were reflected in strong commodity prices, while inventories remained relatively low.

“Our customers generally remain very profitable and have strong balance sheets. In some cases, we are seeing expanding demand at certain sites, especially in regions with lower labour costs, supportive governments and favourable logistics,” he said.

Boart Longyear’s revenue for the period ended June 30 was up by 15% year-on-year to $1-billion and net profit after tax increased by 32% to $98-million or 21.5c a share.

The company’s drilling services division saw revenue increase by 20% to $817-million, while the products division saw revenue remain flat at $282-million. Cash from operations was $24-million compared with $22-million in the same period last year.

Net debt increased by $106-million to fund working capital, while operating cash was used to fund investment and dividends. The company said it had “opportunistically” increased its undrawn revolving debt facility to $350-million as a measure of caution.

Boart Longyear employed 11 440 people across its operations at the end of the period.

The company’s ASX-listed shares closed down 4.72% on Tuesday at A$1.21 apiece.