Tuesday tips round-up: Petrofac, Miners

As an investment alternative Petrofac is fit for purpose, if you're a gambler of course. Yes, there is the decline in the oil price to contend with, but the root of the problem lies in its energy services division, which was supposed to be the engine for growth. An integral part of its business model was premised on taking positions in large oil contracts and locking in some of the eventual production from the same. One warning sign that may have been missed is when earlier this year the executive who was poached from a rival to run it headed for the exit.

Add up all three factors and the scene was set for yesterday's profit warning - the third in recent history - and subsequent drop in the share price. The company guided lower for this year and much lower for next. From an operational standpoint, the company's execution on a number of projects was also faulty. One small positive is the large order backlog. Even so, the firm seems remarkably accident-prone and is safer avoided, writes The Times's Tempus.

As the Chinese economy continues to cool further, anyone hoping for commodity prices to snap back may yet be sorely disappointed. More to the point, miners' earnings forecasts may yet have further to fall and promises of cash returns may fail to materialise. Yes, the authorities in Beijing have been spurred into action, but the measures adopted last Friday have a whiff of panic about them. According to one analyst, at Investec, the prospect of extra cash returns has now "almost vanished." BHP Billiton is a case in point, whereas it had been expected to reward investors for their patience with a special dividend next year - which might have reached 55p per share - now the estimated special dividend comes in at about 9p.

The chief factor behind that fall is the price of iron ore. It was well above the $80 per tonne mark when those predictions were made, but was at $71.8 per tonne at the end of last week. At the beginning of the year the price was to be seen north of $140. At these price levels the big four FTSE-100 listed miners, BHP Billiton, Rio Tinto, Anglo American and Glencore have been left staring into a cumulative $19bn hole in their profit forecasts. Should prices not recover then the above pit deepens, to a staggering $34bn. Eventually, smaller competitors are likely to start dying off and prices will recover, but that process could take a long time. Hence, The Daily Telegraph's Questor team says 'sell' the mining sector.