The increasing volatility, coupled with the inability of some players to raise debt funding, will drive consolidation in the industry.
The mining industry is expected to benefit from strong market conditions over the next five years. Rising demand from Asia, especially China, is likely to continue to support output growth.
Strong underlying outlook with near term weakness
Forecast mining revenue is expected to grow at c.10% per annum, over the next five years, to reach $406.6b in FY18 (IBIS World August 2012 Mining outlook).
Although mining services revenue will benefit from mid term growth, a number of challenges are beginning to emerge.
If recent commodity price weakness continues, mining capex may decline as marginal projects are deferred, and have a flow on effect on mining services revenue.
Notwithstanding, the gearing ratios and bank appetite for exposure to the mining services industry, is likely to limit the ability to raise debt to fund capex expansion.
The increasing volatility, coupled with the inability of some players to raise debt funding, will drive consolidation in the industry. It also presents opportunities for strategic investment into capital constrained companies with strong order books.