Another mining canary croaks

ScreenHunter_12 May. 01 18.48

By Leith van Onselen

Earlier this month, I noted how falling mining equipment sales could be a harbinger of a sharper than expected reduction in mining capex.

Today, Australian Mining has revealed that Coffey, a mining consultancy group, has cut its earnings guidance for 2013 and announced plans to cut jobs after an “alarming spike in project delays and cancellations from the resources industry”:

Coffey said falling commodity prices, the high dollar, and an uncertain political environment had created “deteriorating market conditions” in Australia, and around 150 redundancies were being implemented to stem the losses.

“The softening market conditions have impacted the Australian Geosciences and Project Management businesses…

“We began seeing the impact of these project delays on our geosciences revenue in Q3 FY2013. Geosciences fee revenues for the March quarter of $59.5m were four per cent lower than the previous corresponding quarter, which was not a strong quarter.”

Coffey said in the past six weeks 54 contracts had been delayed or cancelled, and it released an alarming graph showing the rise in cancellations and delays for its geosciences business.

“These delays were initially mostly in the mining sector, and are now across a range of sectors including infrastructure and oil and gas,” the company said.

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Comments

  1. So, business as usual in the mining sector. Booms where they cannot get geologists and engineers without paying a fortune, and then a few years later busts where those same geologists and engineers are driving taxis.

    This has been going on in my lifetime since the nickel boom of the sixties and most certainly before then.

    I wonder if ever those highly paid mining executives will do the right thing by their shareholders and at least try to realise that there is a cycle at work here, and if they are trying to build capacity during boom times, they have missed out.

    • I wonder if ever those highly paid mining executives will do the right thing by their shareholders

      They will not.
      The super profits tax should be placed directly on the scum pocketing the most dollars.

  2. An in-law is paid $80 000 a year for a mere 2 days work a week giving safety talks on a mine site. I can see him being one of the next canaries to fall.

  3. JacksonMEMBER

    This has been happening to all the engineering and specialist consultancies since about Oct 2012. Not many of them make it into the business news.

    • Mining BoganMEMBER

      Yep. Was sitting next to an engineer on a Brisbane-Perth flight three months ago and he was telling me his type were struggling for work in both states.

      Methinks this time Sylvester has eaten Tweety Pie and Granny is nowhere to be seen to save him…

    • thomickersMEMBER

      It seriously needs a capital raising (to the amount of $2billion) if iron ore prices go under $100/tonne for 1 full financial year.

  4. Baron Von Cool

    I’ve been working as a contract geologist for the last 8 years. I saved a massive deposit for a house in 2007, and was approved for $600k at the time, back when you just had to say the word “mortgage” 3 times and 4 toyota echos would screech into your driveway with stickers on the side saying “wizard” or “aussie”. I couldn’t make the numbers work or produce a graph with a realistic capital gains trajectory so I bailed the whole idea. I’m glad I did, I would have been paying to lose money for the last 5 years.

    I’ve been following this site for a few years now and saw clearly the end of the boom, and made as much hay as i could. 6 months ago, I had 5 recruiters with several jobs each, begging me to work for them. Now, the company I have contracted for for 6 years has trimmed down its staff and is getting no new contracts, and the recruiters who were hounding me no longer handle geologists, and departments have closed down. In one week a few months ago, the number of jobs under the search term “geologist” on Seek went from over 900 down to 350. And a lot of those jobs i suspect are fake jobs posted by recruiters farming for CV’s. I see this as the real canary. I am disturbed that people who are actually paid to see business conditions ahead of time do not seem to be able to fill this role.

    • darklydrawlMEMBER

      Indeed. I have copied the text below from The Oz, as it sums up what I wanted to say rather well, that is: Saracen was (officially at least) looking ok.

      “http://www.theaustralian.com.au/business/opinion/saracen-to-suspend-expansion-slash-exploration-and-cut-director-fees/story-fnciihm9-1226640638300

      “… less than a month ago there seemed to be few alarm bells ringing. The quarterly report came out on April 17, with the gold market having closed overnight at $US1378.90 an ounce, much lower than it is now (even after Friday’s $US10.05 fall, the yellow one is holding at $US1448.20/oz).

      But that quarterly was really upbeat, noting record gold production, the company being on track for record annual gold production of at least 125,000oz, and a mark to market hedge worth $56 million assuming a gold price of $US1300/oz. The next day, the company delivered a similarly upbeat picture at a gold conference in Zurich.

      Indeed, SAR’s shares did very well over the past week, moving from a Monday open of 15c to a Friday close at 18c.

      But there was a clue in the March quarterly: cash costs for the year would be between $975/oz and $1075/oz.

      Yes, but once you add other costs — royalties, capital works, mine development, exploration and corporate expenses, SAR is looking at an “all-in” cost of $1600/oz. The changes announced on Friday will bring that all-in cost down to $975/oz.”

      So did they know or not know?

      Also contractor GE Engineering Services (GNG) says the suspension of the $16m crushing project at Carosue Dam will put a $4m hole in its second-half revenue.

      More Ouch!

      • Baron Von Cool

        Hmmm, I actually have tended to try and stay out of the business dealings of the companies I have worked for, and just concentrate on performing good geological work, but obviously I have been exposed to the working of a few different mid-level companies.

        The article is pay-walled, so I couldn’t read it, but my impression would be that during the boom, Saracen started out as a junior explorer managing a few nice tenements. While gold was going up they were able to raise lots of money to finance exploration programs, which were successful and therefore attracted more investors and joint ventures with other mining and exploration companies. The production of gold within one of the exploration successes became an income stream beyond raising investor money, and a way to generate profit (economics 101: good times – maximise profit), and pay for exploration programs to grow the company’s resource base.

        When the gold run turned around, it would have become apparent that exploration programs themselves would no longer be as profitable an expense, or a raison d’etre of the company, as they can survive as a dedicated gold producer, at least until investors want to speculate on gold exploration again (economics 101: bad times – minimise loss).

        So I would say that they knew that they were a high cost producer, but that factors in exploration/capital raising (with the possible resource gains that come with it). They have probably made a sensible decision to rebalance their business towards production until there is a new commodity cycle. In my experience a lot of junior companies are a speculative play, with directors gearing exploration decisions around stock market releases rather than the most effective and direct approach to resource delineation, often so they can simply survive long enough to actually make a discovery (which can pay off big time).

      • drsmithyMEMBER

        The article is pay-walled, so I couldn’t read it, […]

        For future reference, if you want to get a full Oz article, just Google the full title – the link you can click from from Google will be the entire article.

        Like this.

      • darklydrawlMEMBER

        Thanks DrSmithy. That is how I found it originally. I forgot the Oz is now paywalled.

        The bulk of the relevant data I copied into the original post anyway.

    • Baron – you’re a genius. Hope there are more like you out there but I don’t think so given the amount of property punters out there. After the crash, you’ll be a rich man.

  5. KBR at 4 day week, GHD laid off >50 adelaide, Worley ultimatum to staff offshore or no job, For Lease signs going up daily on Consultants row. $150kpa engineers from tier 1 firms offering to take 25% paycut in return for job security at my Tier 3 firm. Leith – the canaries are dead, the maggots have gone, the feathers are blowing in the wind and all that is left is the vague odour of decay and a few bones. Yes the cranes are still up and the trucks are moving overburden but that’s only where the commitment has been made long long ago.

    • JacksonMEMBER

      +1. You can add every other engineering mob to that list.

      The days of design getting conducted in Australia are dead, like WP people are losing work to their own company in other countries. Pay needs to stagnate for 3 years and AUD to 80c before it will come back again. We will be left with just a few client-facing types, with the design getting done elsewhere. Love this service economy!

      Some hope if you’re in operations, but that is a small pie.

    • Wasted OpportunitiesMEMBER

      Our small specialist engineering consultancy is not directly exposed to mining or housing, but we are now seeing some extraordinarily desperate attempts from the big boys to buy work in our sector.

      We have recently lost tenders to some ridiculously low bids that I know are not even close to covering their costs on the work (if they do it properly). Hopefully their clients aren’t so disappointed with the result that they give up entirely.

  6. Another major foreign mining services firm with a local Brisbane base just let go of quite a few staff, including pretty much most of their “non-core” support staff.