Forge Group Ltd. (FGE) plunged a record 84 percent at the close in Sydney trading after forecasting a loss, leading declines among mining-services companies already struggling as mineral producers cut back spending.
Forge, whose clients include Rio Tinto Group, lost more than A$300 million ($274 million) in market value in Sydney today after saying cost overruns and poor management at two Australian projects also forced it to negotiate new debt terms.
KKR & Co.’s Australian mining services company, Bis Industries Ltd., yesterday scrapped plans for an initial public offering, citing unfavorable market sentiment for resource stocks. After the peak of a decade-long commodity boom in Australia, the world’s biggest iron ore and coal exporter, resources companies are cutting spending, squeezing suppliers.
“There are very few projects in the energy or the mining sector coming on,” Ross MacMillan, an analyst at Morningstar Inc. in Sydney, said by phone. “The customer is in the box seat and they’re crunching the margins of these mining-services companies. I don’t think you’re going to see any sustained pickup in the next two years.”
Forge closed at 68.5 cents after resuming from a near month-long suspension. About 99 million shares changed hands today, more than all the Forge stock available to trade at any one time.
Boart Longyear Ltd. (BLY), which leases drilling equipment, dropped 4.8 percent. Shares of Ausenco Ltd. (AAX), a provider of construction and engineering services to resources companies, were suspended as it announced a rights offer and said conditions were challenging.
“There’s increased pressure on mining companies to look at their cost base and the first thing they do is cut out all externally managed costs as much as possible,” Jason Teh, who helps manage A$5 billion at Investors Mutual Ltd. in Sydney, said by phone. “It’s the services companies that feel the brunt of it.”
The value of mineral and energy projects being developed in Australia dropped 10 percent to about A$240 billion, reflecting the peaking of the nation’s mining boom, the Bureau of Resources and Energy Economics said in a report yesterday.
“The current phase of the commodity price cycle is presenting challenges for investment in resources and energy projects,” the bureau said in its report. “Forward projections indicate that investment in the resources and energy sectors is likely to decline over the medium term.”
The benchmark LMEX Index of the six main base metals on the London Metal Exchange, the biggest bourse for metals trading, has fallen 13 percent in 2013, while the Standard and Poor’s 500 Index has jumped 27 percent.
Annual spending by the world’s 20 biggest mining companies by market value will drop by about a third to $66 billion in 2015 from 2012, according to forecasts compiled by Bloomberg in September.
The exploration slowdown has left more than half of Boart Longyear’s 1,035 drilling rigs unused, the Salt Lake City-based company, which trades in Sydney, said last month.
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