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Mining services - mind the funding gap: The mining services landscape - EY - Global

Mining services: mind the funding gap

The mining services landscape

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The mining services index dropped 30 points between March 2012 and June 2012; following concerns about future mining capex spend and declines in the Iron ore price and S&P Metals and Mining index.

We define the mining services industry as companies that provide services or products to the mining industry, and are included in the Capital Goods or Materials GICS on the ASX.

The listed mining services industry is highly fragmented. It consists of 84 companies providing both equipment and non-equipment services, including construction and contract mining through to explosives, testing and logistics.

Market capitalization for the mining services sector at 31 August 2012 was $72.7b, down $16.3b (18.3%) from 31 March 2012. This reflects concerns over a slowdown in mining capex, following recent declines in commodity prices.

Market capitalization

Market capitalization

Market capitalization by segment — August 2012

Market capitalization by segment — August 2012

Strong EBITDA growth

  • Total EBITDA across the ASX listed mining services industry has shown stable growth from FY09 to FY12, with a CAGR of 8%.
  • EBITDA growth increased at a CAGR of 14% for mining service companies with mining sourced revenues greater than 50% — supporting the two speed economy notion.
  • EBITDA growth increased to 21% in FY12 for these companies, the highest rate of growth over the past four years.
  • The consultants/contractors and construction segments demonstrated the strongest EBITDA growth in FY12, increasing 40%.

EBITDA trading multiples of 8x

Mining services traded at an average EBITDA multiple of 8.1 times at June 2012. This has reduced from a multiple of 9.2 times at March 2012, following the decrease in equity values.

Recently, reduced earnings multiples presented significant opportunity. However, there remains the risk that multiples may fall further if market sentiment regarding mining capex spend remain subdued.

Mining services index outperforms

For the past three years, the Mining Services index has outperformed the ASX All Ordinaries and S&P Metals and Mining index. This outperformance has reduced significantly between March 2012 and August 2012.

The mining services index dropped 30 points between March 2012 and June 2012; following concerns about future mining capex spend and declines in the Iron ore price and S&P Metals and Mining index.

 

Index performance


Index performance

Commodity index


Commodity index



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