The top executive of one of the world's biggest mining drilling companies said he believes the industry has bottomed out, but that he doesn't expect a return to peak cycle levels soon.
Moreover, there has been "a fundamental shift in what investors and management are looking for in mining," said Richard O’Brien, CEO of Utah-based Boart Longyear Ltd.whose main business is helping companies drill for new mineral deposits from Australia to the Congo.
"We're unlikely to see a further fall, because at some point you have to replace depleted reserves," he said Monday. "But does a pick-up happen in 2014 or 2015? I don’t know. We probably won't get back to the boom days of 2012 any time soon."
Rocked by lower prices for everything from iron ore to uranium and soaring inflation in costs, mining companies have been cutting back on such exploration and shelving so-called greenfields, mines on totally new sites, from Papua New Guinea to the Arctic. Industry-wide, exploration budgets are down 25% this year, to $15 billion in 2013 from $20 billion last year, which has hammered Boart Longyear.
The 59-year-old former CEO of Newmont Mining Corp., who was named Boart CEO in April, said he's never seen this kind of pulling back in his long career in natural resources. "It happened in the financial crisis, but that was more motivated by a lack of access to capital," he said. “This is more of a philosophical shift in how mining operates."
He said most of the company's customers have cut their spending between 20% and 40%.
The company's rig utilization rate, a measure of how much of its drilling equipment is being used, has fallen to 45% from around 70% last year. In the first six months of 2013, the firm booked a loss of $329 million on revenue of $719 million during the first six months of 2013, from a profit of $98 million profit a year ago, and it took $315 million in restructuring charges and asset impairments.
In response, Boart Longyear is trying to expand sales of drilling technology used for existing mines, as opposed to exploration. For example, its drilling equipment can be used to pump water out of existing underground sites.
It's not just lower commodity prices that have hurt. Mr. O'Brien said he lost a key contract for 12 drill rigs in Argentina after the government imposed restrictions on mining.
The company's share price has fallen 74% in the past year and its market capitalization stands at $194 million, down from around $2 billion last year. It has nearly halved its workforce to fewers than 6,500 from more than 11,000.
