Mining contractors will be forced to retender for work at lower prices squeezing their margins and forcing them to lay off workers and reduce their already high investment in capital equipment, Roger Montgomery told the ABC.
“What we know already is that expectations for capital expenditure in the resource sector are being revised lower,” he said.
“Their job is to now transfer wealth from the business to shareholders. And the simplest way of doing that it in an era of lower resource expenditure and lower resource prices is to cut costs.”
BHP Billiton has 46,000 employees, but 76,000 contractors, so the “low-hanging fruit” are the contractors, Montgomery said.
“And what we're going to see now is we're going to see this proliferation of mining services businesses try and survive by competing for less work,” he said.
“And the way they do that is through the tenders they lower their prices to try and win the job, but that means lower margins.
“So I think we're going to see massive layoffs over the next 18 to 24 months and maybe three years.”
Montgomery expects to see tough times in 2014 for even the big companies such as Worley Parsons, Monadelphous, Fleetwoods as well as Decmil and Forge. Businesses with particular exposure to iron ore and coal will be the most affected.
Capital intensive businesses such as Macmahon Holdings are going to find their operating leverage is going to work against them when the revenue is not coming in.
Underground contractor Delta SBD revealed this month that its development contract at Whitehaven Coal’s Narrabri mine would cease from March 29 – nine months earlier than expected. The job had been contracted to end on December 31.
Delta SBD will deploy some of the affected personnel and equipment to existing projects with other clients outside the Narrabri area and was “already in active discussions with these clients about opportunities for the remaining personnel and equipment”, it said.
Its expectations for the January-June period are set against a framework of current general weakness in the coal industry in Australia.
It remains positive about the future but is aware of the challenges facing the industry and is also facing the risk of the winding down of its longstanding whole-of-mine contract with Boral’s Berrima Medway colliery in NSW.
