High and dry?
As you are no doubt aware, we have been keen followers of the mining services sector – before the wholesale sale of the Montgomery [Private] Fund’s exposure back in April last year.
Historical evidence that mining services companies are challenged to cover their cost of capital during non-boom periods, their capital intensity, and the apparent proliferation of providers during the great resource boom suggests to us that, in any period of falling capital and project expenditure by the mining sector, mining services businesses will have to tender at lower prices (impacting margins) or miss out on work altogether (impacting ongoing viability).
A relatively recent report published by the RBA notes that the flow-on effect of any deterioration in conditions will have limited consequences of any scale for financial intermediaries. Nevertheless it is interesting to observe the RBA pondering the impact of a downturn in activity for the sector.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
