Hughes Drilling Limited ("HDX")

[steve fleming]

This is why I remain skeptical of HDX - I cannot for the life of me see how one company can be doing so well when the rest of the industry is falling over. I'd be very cautious as to their future prospects - especially with so many contracts due for renewal in the next 12 months.

http://www.theage.com.au/business/mi...417-2hzaz.html

I agree, its strange that HDX are so bullish, talking up their growth and ordering new drills when there is such negativity around the sector.

Part of it can be explained through production volumes holding up (Coal exports out of Newcastle and Qld for March Qtr were up YoY, but down vs Dec qtr becos of the weather). As noted in the story "Ausdrill said its core business of mining services in Africa and Australia has largely continued to perform as expected due to the focus on mines already in production",

You'd think Management, who are pretty experienced, would have pretty good visibility as to outlook, and wouldn't be making all these statements around continued sustained growth without sound basis.

I guess there is the risk that the situation is very fluid, that Management is caught unawares. But again, the risk would be greater at the exploration stage, where there is less lead time involved and it is a lot easier to turn off the tap.

But for production drilling, years and years of planning/construction is involved in mine development/expansion - it is not something that can be easily halted when you already have signed forward contracts/offtake agreements, already secured port / rail commitments etc...makes it a bit more difficult to say, sorry guys, we have decided to stop producing!

But in the medium term, so much depends on whether current prices are the low point in the cycle....commodity pricing adds another level of risk, like any mining/mining services play which definitely needs to be accounted for in portfolio allocation/construction.


.

[Joshuatree]

I see Robert Hughes has dropped from 60 to 48% ownership in HDX announcement today. Good i would think going under 50.But he didnt take up his rights maybe not a vote in confidence or?

[steve fleming]

But he didnt take up his rights maybe not a vote in confidence or?

It was an SPP only - no rights issue. SPP not finalised yet!

[NZSilver]

Share price lost 25% since I brought in.... things not going to well??

[percy]

Just as well Phaedrus is no longer here.
I think he would have shot me.
No fool like an old fool.
Thanks for the reminder KW.!!!!!

[Joshuatree]

Short term thinking imo. Sure the current s/p aint wonderful but i still believe in the contrarian view that HDX has a big competitive advantage for a while and has been pulled down with sentiment in other mining services co's. Im not a short term trader.

[steve fleming]

After months of negativity around coal, am starting to see some positive signs.
The lower AUD will certainly assist coal producers, and Whitehaven is up over 20% this week.

-------------------------------------------------
CHEAP COAL IGNITES ENERGY BATTLE

Currencies are not the only asset at war. Energy too is engaged in a race to the bottom, which is producing unexpected results including the restoration of coal as the world’s preferred low-cost fuel for producing electricity.
It’s too early to tip coal stocks as a buy, mainly because there is the potential for a fresh round of government interference in the market. But demand for coal is rising in Europe and the US, and it remains strong in Asia.
Missing, so far, from a complex equation triggered partly by the failure of Europe’s carbon emissions system, is a meaningful rise in the price of thermal coal, the low-grade material used by power generators.
But what the demand picture does show is that some low-cost coal producers have been oversold and that major coal producers, including Rio Tinto, Xstrata and BHP Billiton, should see a profit recovery from their hard-hit energy operations sooner rather than later.
Even massively discounted pure coal plays, such as Whitehaven Coal, could rebound once corporate uncertainties are cleared away.
While the message for investors is not a clear buy signal, it is a reminder that forecasts about future energy supply and demand are proving to be incorrect.
The biggest failure is the Peak Oil theory – a popular belief of a few years ago that predicted a time when liquid fuel supplies would dry up. Not only has this not happened, but the supply of liquid fuels (especially natural gas and associated liquids from shale) is rising, especially in the US, with many countries rushing to join the shale revolution.
The second major failure has been European attempts to control emissions of carbon dioxide from burning coal. While Australia is determined to try and follow Europe in pricing coal out of its energy equation, the rest of the world is not.
Boiled down, the energy war is all about “economy vs environment”, with regions that once championed anti-coal measures forced to join the move back to coal. This is mainly because it’s an abundant energy source, and is cheap when compared with environmentally-friendly energy sources such as wind and solar.
Environmentally, coal might be public enemy No.1 but, in the real economy, it is reclaiming its status as the low-cost fuel of choice with government attempts to price it out of the market proving futile, so far.


Read more at Eureka Report: http://www.eurekareport.com.au/artic...#ixzz2SmLEPGhO

[Stranger_Danger]

Re WHC, what about the Tinkler overhang?

That is my reason for still keeping away.

[steve fleming]

Re WHC, what about the Tinkler overhang?

That is my reason for still keeping away.

SOME of the nation's most marginal miners could see their earnings improve dramatically if the dollar continues to slide, new research shows.
An analysis by RBC Capital Markets found that a further pull-back in the value of the dollar against the US dollar to US89c could see net profit at some Australian mining companies soar by more than 36 per cent.
Whitehaven Coal's profits would climb 10-fold.

http://www.theaustralian.com.au/nati...-1226643421957


Having Tinlker and his dramas on the registar is not ideal, but it will ultimately be the fundamentals (including any AUD fall) that drive WHC’s price (and other Australian coal miners )

[steve fleming]

An update from Ballieu Holst on HDX last week titled "Positive outlook and appealing value’ noted that "The current market rating for HDX seems disconnected to the reality of a stock not exposed to discretionary expenditures"

Obviously sentiment is totally against HDX, but if you look behind the anti-mining services sentiment, then you will see a growing, almost defensive type stock on a forward PE of 2.

Ballieu Holst emphasise that HDX is a low cost operator that will ACTUALLY benefit from the cost restructurings taking place at the moment.
I.e. replacing highly unionised, high cost labour with an efficient, low cost operator such as HDX.

Ballieu Holst continue to forecast EPS growth into FY14 of 10%, on the back of taking market share from higher cost operators.