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Miners’ gloomy outlook dims driller’s prospects

Major Drilling says conventional drilling services have been the hit the hardest.

Major Drilling Group

Major Drilling Group International Inc., the world's second-largest drilling company, has cut how much it charges companies to drill for mineral riches as exploration spending falls off in the embattled industry.

Chief executive officer Francis McGuire said in an interview on the sidelines of the annual Prospectors and Developers Association of Canada conference that conventional drilling services have been hit hardest.

"Our conventional drilling, because of the price competition out there, is brutal and the number of drills out there is very high. On the specialized side, it hasn't dropped off that much," he said in an interview.

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Drillers are considered a proxy of the health of the mining industry in general because exploration is how miners plan for future growth.

The industry is facing a crisis of investor confidence, hit by a murky outlook for future metals prices and a litany of bad news that has seen stock prices tumble. A slew of multibillion-dollar writedowns by large companies since January showed that even the most savvy companies got caught up in the euphoria of the global commodities supercycle.

Bets gone awry have seen chief executives at top companies lose their jobs, including at Canada's Barrick Gold Corp. and Kinross Gold Corp., which both fired CEOs in the past nine months.

Major Drilling, which is second only in the drilling world to Boart Longyear, has felt the pinch of the global mining slowdown, reporting a loss of $4.3-million or 5 cents a share, for the fiscal third quarter on Monday. That compared to a profit of $9.6-million or 12 cents a year earlier.

Mr. McGuire said business would continue to be slow in coming months as miners take their time in committing to new drilling activities and most junior explorers stay out of the market altogether as financing dries up in debt and equity markets.

Junior explorers burn through cash faster than most mining companies, pursuing aggressive drilling programs so that they can locate and delineate mining assets and attract attention from prospective buyers.

Mr. McGuire said drilling mostly stopped by the juniors in July last year, after they ran out of cash. Big miners continue to drill, but they have also seen their balance sheets squeezed and are confining most exploration to so-called brownfields drilling around existing operations.

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"It's kind of a hiatus period, and it will be for the next five months or so," said Mr. McGuire, who pointed at sharp falls in drilling in countries like Mongolia, where he has between six and 12 drills operating compared to 22 in better times. "The five biggest customers have new CEOs. We're just getting a whole lot of, 'well, we're going to do something but we're not sure exactly how much, or we're going to be a little late,' " he said.

A bright spot in an otherwise gloomy outlook is Latin America, he said, where even Argentina, unpopular with investors these days due to political uncertainty, has held up well.

"Latin America is distinctly stronger than the rest of the world," said Mr. McGuire.

He predicted general renewed activity starting in April and May and strengthening through the third quarter of the year, but that there is less visibility after that.

"There's a lot of what I would call re-thinking going on, but not pulling back. It's not at all like 2008."

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About the Author
Mining Reporter

Pav Jordan is a mining reporter for the Report on Business. More

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