Major Drilling Group International (MDI.TO), the world’s No. 2 mine drilling company, expects a “significant” slowdown in base metals exploration next year and is uncertain about future activity in the gold-mining sector, the company said on Tuesday.
On a conference call to discuss the company’s second-quarter earnings, Chief Executive Francis McGuire said the current economic climate has weighed on drilling activity and will continue to do so in the short to medium term.
“The company expects to see a slowdown in activity in calendar year 2009, although the amount of slowdown is uncertain,” he said.
Worries of a global recession have hammered prices of industrial metals such as copper, zinc, and nickel, while the meltdown in the financial services industry has all but shut credit markets to miners, particularly to smaller explorers.
“Senior and intermediate mining companies will continue with their exploration programs in order to replenish depleting reserves, although at this time, the level of exploration to be undertaken by these customers remains uncertain,” he said.
While the fundamentals on the gold side of the business have been stronger than on the base metals side, McGuire said the picture for next year is not yet clear.
“One of the big question marks is what will happen to the gold market,” he said.
“We believe that they as well as everybody else are really holding back on making final decisions for the year.”
Gold prices are down 7 percent year-to-date, while copper, zinc, and nickel have all lost more than 50 percent of their value.
Gold drilling accounts for about 50 percent of the market.
The company said it laid off 120 workers during November to cut costs, and has worked hard to improve its balance sheet.
Major Drilling earned C$29.3 million ($23.3 million), or C$1.22 a share, in the quarter ended Oct. 31, up from a profit of C$22.6 million, or 94 Canadian cents a share, in the year-before period.
Revenue rose to C$191 million from C$156.1 million as the company earned more per drilling rig and operated in more jurisdictions.
However, Major Drilling said the third quarter, which traditionally is the weakest of the year, will be particularly difficult this year due to the economic climate, and due to expected restructuring charges stemming from the retirement of inefficient rigs.
The company’s shares, which are down more than 80 percent so far this year, fell 69 Canadian cents, or 6.3 percent, to C$10.27 on the Toronto Stock Exchange.
($1=$1.26 Canadian) (Reporting by Cameron French; editing by Peter Galloway)
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