Energy / Resources

On Wednesday the Australian Bureau of Resources and Energy Economics said 51 mineral projects, 18 gas and petroleum projects and 18 infrastructure projects worth $268 billion had been approved. Of the 87 projects, 11 mega projects worth more than $5 billion each, account for an aggregate $200 billion or 75 per cent of the total committed project value. For some months now we have been warning investors of a growth cliff and note the slowing in the number of projects that have progressed from potential to committed. For example, in the six months to April 2012, 21 projects worth $45 billion were approved. However, in the six months to October 2012, 10 projects worth $13 billion were approved.

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by David Buckland Posted in Companies, Energy / Resources.

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Although it has taken a while for our alert earlier this year to flow through, project delays, cancellations and profit downgrades are mounting as the mining services sector confronts its post-capex-boom. To name a few: Macmahon is shedding staff and cutting pay rates, Emeco’s hiring rates have collapsed with an industry wide surplus of idle heavy machinery, Diploma Group is no longer proceeding to build a 244 man camp near Tom Price for Rio Tinto, ALS is reporting no growth, Ausdrill severed its earnings guidance and Orica wrote down the value of its equipment finance division, Minova, by $367m.

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by Russell Muldoon Posted in Energy / Resources, Insightful Insights.

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Roger highlights the risks to Resource Service firms revenue streams due to their status as contractors in this Australian article published November 24th 2012.  Read here.

by Roger Montgomery Posted in Energy / Resources, In the Press.

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As you know at Montgomery Investment Management we have held a very cautious view on iron ore for almost a year, noting the apparent over-investment in supply and reliance on Chinese demand. However, we have a more positive outlook in other areas.

Energy is one area where we feel that the supply and demand outlook is more favourable, and we have turned our minds to which companies might benefit from this.

As we have written about elsewhere, one such company is Miclyn Express Offshore Limited (ASX:MIO).

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by Roger Montgomery Posted in Energy / Resources, Whitepapers.

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In typically comprehensive style Roger provides his insights on Dark pools, high frequency trading, foreign investment, reserve currency and Nathan Tinkler in this interview with Ticky Fullerton on ABC1’s The Business broadcast 20 November 2012. Watch here.

by Roger Montgomery Posted in Energy / Resources, Intrinsic Value, TV Appearances.

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Earlier this week The International Energy Agency released its World Energy Outlook. While total US oil and gas production is expected to increase 35 per cent from 17 million barrels of oil equivalent per day (mboe/d) in 2010 to 23 mboe/d in 2020, the transformation is explained by the expected 6 mboe/d surge in unconventional oil and gas production over this decade. Together with the widening of the Panama Canal by 2014, which will allow LNG Supertankers to travel to Asia from the Gulf of Mexico, the US could potentially turn into a cheap exporter of gas, in competition with Australia.
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by David Buckland Posted in Energy / Resources, Insightful Insights, Value.able.

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The contractual nature of the resource service sector was highlighted with Emeco’s latest earnings downgrade. Their Australian fleet utilisation has declined from 91% in the 6 months to June 2012 to the current 66%. A combination of weaker demand, contract revisions, and contract non-remewals was to blame. Commentary particularly reflected lost contracts from the iron ore and coal industries. Expectations for the Company’s revenue line has been cut by 20% to around $550m for each of Fiscal 2013 and 2014, while net earnings have been reduced by around one-third to $51m and $58m, respectively. At the current share price of $0.51, some brokers are calling Emeco a buy as it is now selling on a prospective PE of 6X and a one-third discount to its net tangible asset backing of $0.76 per share.

Nevertheless, we remain cautious on the outlook for the resource service companies generally and believe investors should be wary of Emeco’s forecast $443m net indebtedness.

by David Buckland Posted in Companies, Energy / Resources, Insightful Insights.

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Roger provides his latest insights into the current state of the Australian share market (and a lack of value therein), the impact of changes in the mining industry on the Australian dollar and future foreign investment, and the outlook in the United States and its “Fiscal Cliff” with Ross Greenwood on Radio 2GB.  Listen here.

This program was broadcast 13 November 2012.

by Roger Montgomery Posted in Energy / Resources, Insightful Insights, Radio.

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World Steel Production, according to Macquarie Equities, has been cut by 4 per cent to an average 1.7 billion tonnes per annum over the 2013-2015 period.

China’s steel production accounts for an average 760 million tonnes or 47%, approximately 50 million tonnes more than their forecast average demand.

Global mining capital expenditure is expected to peak in 2012 at $142b and decline by around 10% per annum to $115b by 2014.

Earnings downgrades are being experienced by major excavator companies like the Japanese listed Komatsu, where mining equipment makes up 30% of its US$22b revenue line.

by David Buckland Posted in Energy / Resources, Insightful Insights.

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Yesterday Marius Kloppers was reported in the Oz as saying “the record prices we experienced over the past decade, driven by the ‘demand shock’, will not be there to support returns over the next 10 years”

Additionally he revealed that the mining industry collectively has not learned anything from past booms and busts when he explained that to meet the rising demand mining companies had yet again taken a “volume over cost” approach, adding “improving productivity played second fiddle to speed to market for many in the industry”.

While we can give ourselves a little ‘we-said-it-here-first’ pat on the back for spotting the coming slump in iron ore prices a year ago and protecting our investors from it, the bigger picture is more important;  Where is the industry’s equivalent of the Thomas the Tank character – the Fat Controller?  Why is there no ‘OPEC’ for iron ore and coal producers?  Would it help if there was?

The lessons of each boom/bust cycle are lost with each generation’s death and the mistakes repeated again. Only those who study history can hope to beat this cycle because caught in its spotlight are prone to declare this time is different.

An argument we heard this time was “it can’t fall below $100/t because China’s cost of production is higher”. Yet anyone with more than a few minutes experience in commodity markets can tell you that just about every commodity has traded below its cost of production and sometimes for many years.

While we believe we are able to spot these cycles developing, we must ask the question, what will be put in place to ensure that next time billions are again not wasted?  Or is this the ugly wart on capitalism’s nose that cannot be removed?

by Roger Montgomery Posted in Energy / Resources, Insightful Insights.

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