It should probably not be too surprising though. Yes, iron ore prices have shown some signs of recovering. Gold has been going good. But it seems it will not take too much of a push to bring the house of cards down.
That is why the latest result from mining equipment maker Joy Global has seemed particularly bleak.
For those who do not know, Joy is one of the largest US mining equipment players, although it is done about an order of magnitude from the other big player there, Caterpillar.
For Joy, bookings were down 29% from $US745 ($A969) million a year ago. Service bookings were down 15% from a year ago to $595 million. Its net sales of $810 million were down 13% year on year.
Sadly, it does not like getting much better for a while either.
On the plus side, the company completed the €110 ($A160.4) million acquisition of underground hard rock mining equipment provider Montabert in June. Montabert specialises in hydraulic rock breakers, pneumatic equipment, drilling attachments drifters and related parts and tools.
Joy Global president and CEO Ted Doheny said the company’s second quarter results were a sign of the tough mining times.
“While our operational execution in the quarter was in line with our expectations, the incoming order rate, in particular in the US coal and global copper markets slowed as customers further reduced capital expenditures and deferred maintenance on their mining equipment fleets,” he said.
Doheny said Joy was continuing to invest in its service business and was taking steps to optimise its global manufacturing and service foot print pointing to the Montabert acquisition as a “prudent” one.
“This acquisition represents an important step in expanding product and service capabilities for hard rock mining, tunnelling and rock excavation, further diversifying the company’s commodity and end market exposures,” he said.
“The Montabert line will complement our existing fleet of hard rock equipment and leverages our global service centre infrastructure providing long-term value to shareholders.”
Despite that glimmer, there was not much good news for Joy.
Bookings for surface mining equipment fell 43% in comparison to the second quarter of last year. Original equipment orders fell 87% compared to the prior year, which included a multiple shovel order for an oil sands customer.
Original equipment orders decreased in all regions except Eurasia.
Orders for surface mining equipment were reduced by $8 million due to the impact of foreign currency exchange compared to the same quarter last year.
Underground mining machinery bookings fell 10% year on year. Original equipment orders were down 11% from the prior year. Orders increased in North America and Africa. Sadly, that was more than offset by downturns in all other regions.
The value of underground mining machinery orders was reduced by $25 million due to the impact of foreign currency exchange compared to the second quarter of last year.
The backlog at the end of the second quarter was $1.26 billion, down from $1.33 billion at the beginning of the year.
Operating income for the second quarter of the US 2015 financial year totalled $70 million, compared to $126 million in the second quarter of fiscal 2014.
The second quarter 2015 also included a $24 million hit for restructuring charges and a non-cash pension settlement charge. In 2014 there was only a $5.3 million negative impact and that was for restructuring charges and acquisition costs.
The decrease in operating income before restructuring, non-cash pension settlements and acquisition costs in both periods was due to lower sales volumes, unfavourable product mixes and increased period costs. Those were partially offset by savings from the company’s cost reduction programs and lower incentive-based compensation expenses.
Restructuring activities continued in the quarter to better align the company’s workforce and overall cost structure with existing and expected demand.
More restructuring charges are likely to come as Joy continues to optimise its manufacturing footprint.
Due to a recent UK law change, Joy recorded a $12.9 million non-cash pension settlement charge in the second quarter due to certain members transferring their benefit out of the company’s defined pension scheme to a defined contribution plan.
So what do things look like going forward?
Joy reckons global growth will be above 3% this year, supporting demand for mined commodities, however, several macroeconomic pressures could increase and materially impact the growth profile.
Indeed, concerns about the strength of the global economy in the first quarter contributed to copper prices falling below $2.50 per pound at the end of January.
Since then copper prices have come back more than 15% to $2.80/lb as anticipated Chinese stimulus helped drive positive sentiment in the market.
Longer term, the copper project pipeline remains health as the expected return to a deficit position in the market is expected to support investment in the industry.
Challenges in the seaborne thermal coal market have increased as prices drifted below $60 per tonne in some cases.
While further supply rationalisation is still needed to balance the market, the strengthening US dollar along with lower oil prices has lowered production costs for the Australian, Russian and Indonesian producers, slowing the supply adjustment process.
Met coal prices have taken a hammering too, going from $115 a tonne to about $85 a tonne. Seaborne iron ore prices are also a shadow of their former selves.
While global mining markets attempt to establish a trough, concern over end-user demand for commodities and oversupplied markets remains.
So where does this leave Joy?
“While we navigate through the downturn of this mining cycle we remain committed to our growth strategies,” Doheny said.
“Our acquisition of Montabert will further expand our underground hard rock product portfolio. We believe the rock drill and rock breaker product lines are highly differentiated products complementary to our hard rock mining business.
“The strong service components accompanied with our existing service footprint provides a competitive advantage for us.”
Doheny believes Joy’s ability to provide “world-class service” to be more critical than ever in these tough times.
“We will continue to invest in our global network of service facilities, add new service products and consumables and expand our market leading position in JoySmart services that help our customers sustainably lower their costs,” he said.
However, the downturn in the mining markets has taken a toll.
Doheny said despite the efforts to restructure the business and accelerate its manufacturing and service optimisation plan, it was still facing reduced production forecasts and further deferred maintenance in its installed base of equipment.
“We now expect sales and earnings for the year, excluding restructuring, pension settlement and acquisition related charges to be at the low end of our previous guidance range of $3.3 billion to $3.6 billion for revenues and $2.50 to $3 adjusted earnings per fully diluted share,” he said.
This all sounds a little sombre. Caterpillar and other major mining equipment makers have not put out their quarterly results as yet. Those figures could really tell the tale.