Heightened risks: At the AGMs a couple of months ago commentary was largely upbeat, and cautionary disclaimers were few relative to the last couple of years where labour and costs dominated discussions. There was a clear positive tone. However, it has been a rocky start to the year for miners exposed to nickel and lithium, with well publicised shutdowns. We expect the tone to be a bit more muted as mining services companies expand on their outlook during the February reporting season.
Labour market the silver lining: With nickel mines shutting down, an alumina refinery closing, expansion plans being curtailed, and other projects being reviewed, we think 2024 could be the year we start to see tangible easing in labour pressure and constraints in WA. A return to a more normal labour environment will be a major positive for miners and their contractors in our view. Labour costs, turnover, and availability have provided headwinds ever since COVID hit.
Risk through the mining life cycle: Quality projects exposed to commodities in favour will continue to attract funding. Commodities out of favour will find it harder to tap equity markets, implying risk to ongoing feasibility and development. We expect a period of cautious belt tightening amongst juniors. Previously we have recommended focusing on contractors exposed to the back end of the mining life cycle rather than the front, but recent events have shown that producers are not immune to a price downturn either.
Boxes to tick: As a result we believe the focus should be on those services businesses with size and diversity on their side, with the bulk of their exposure to lower-risk commodities, and of course with low balance sheet risk. We elaborate in this note.
Expectations: We provide our views and expectations for ASX-listed mining services companies in this note. See summary (pages 3 and 4 via link above) where we show guidance where provided, our forecasts for those we cover, and consensus numbers if available.
