It’s a familiar story these days for companies in the increasingly fraught mining services business.
Report bad news with contracts, cost overruns, cost cuts, the departure of a CEO, a slide in earnings forecasts and whooska down go the shares. It’s a trend in the mining services sector now becoming commonplace.
And so it was for WDS yesterday, which joined its peer, Titan Energy Services (TTN), in seeing its shares absolutely whacked by increasingly fed up investors.
Titan’s problems were in the coal seam gas sector in Queensland; WDS’s problems are in contracts in the Queensland coal industry, specifically the $142 million contract at the Eagle Downs mine owned by Vale of Brazil and Aquila Resources, and in the CSG business as well.
WDS shares plunged 68.5% by the close yesterday to 25.5c after it revealed it had slashed estimated 2014-15 profit to a range of $1 million to $3 million – just two months after forecasting the result would be higher than the $13.3 million earned in 2013-14.
The shock downgrade claimed the scalp of managing director Terry Chapman who agreed with the board that it was time for “a transition” in the company’s leadership.
WDS 1Y – More mining services suffering
In a statement to the ASX WDS cited several factors for the reduced forecast, including a fatality at its energy division, which interrupted work at an LNG project site in Queensland.
It said that its energy division had failed to win a follow-up contract at a major coal seam gas project, while its mining division has suffered problems with the contract at Eagle Downs, related to poorer than expected productivity in production which has cut revenues and margins at the project.
WDS said the energy division has taken a hit of about $9 million as a result of its problems, while the impact on the mining division was about $4 million.
Revenues would be between $330 million and $350 million for the year to next June, the result would be heavily weighted towards the second half, meaning the company will probably report a first half loss.
The drastic deterioration in the outlook for WDS has triggered a widescale independent review of the strategy and operations, to be completed by the year-end.
The Sydney head office will be closed and operations relocated to Brisbane, while the “Board and Managing Director, Mr Terry Chapman, have agreed that it is appropriate timing for a transition to new leadership,” the company said in its statement yesterday.
“The Board will now look to secure a new CEO as a matter of priority," it said, adding that Mr Chapman would remain until his replacement is found.
The fatality involved a WDS employee working at Origin Energy’s Australia Pacific LNG project in Queensland. WDS said yesterday management was carefully examining the root causes of the accident on September 15 and was “determined to bring about such improvements to further mitigate risks across all worksites”.
WDS is due to complete its work at AP-LNG in the current half year, and will then disband its team on the site and tender for other work at the CSG-LNG projects in Queensland.
The problems at WDS mirror those at Titan, which were revealed at the start of this month.
Titan shares lost 67% after it slashed its 2014-15 profit. Following a couple of contract losses or changed terms Titan said it now expected to report a year to June pre-tax profit of just $10-$12 million. Less than two months ago In August, it forecast a pre-tax profit of $21 million, up 14% year on year.
In September, ALS, the giant testing group, saw its shares lose 16% in a day after it downgraded its first half profit.
