Mining contractor’s shares plunge 30pc after dividend cancelled

Shares in GR Engineering Services have plunged today after the mining services contractor suspended its dividend over a dispute with UK-based, ASX-listed Wolf Minerals.

Investors didn’t take too kindly to the news with Perth-based GR Engineering (ASX:GNG) shares dropping 2 per cent to a low of $1.03 in morning trade, with more than 700,000 shares changing hands.

The mining services sector is a leading indicator of the health of the resources sector. Improved commodity prices this year have not only seen renewed optimism for miners — but also for mining services companies like GR Engineering.

The dispute relates to noise emissions from the processing plant at Wolf’s (ASX:WLF) Drakelands open pit mine at its Hemerdon Tungsten and Tin Project, where GR’s UK subsidiary is building a mineral processing facility at the project in Devon, England.

Wolf alleges GR Engineering has failed to fix an issue with noise emissions at the project.

When the contract was signed in 2013, GR agreed to provide performance bond under the contract, which included a $12.2 million unconditional bank guarantee to secure GR’s performance under the contract.

Wolf has now decided to recover the costs of the onglong noise issues by way of the bank guranatee under the construction contract and has sent a notice of claim and a notice of intention to call on the bank gurantee given GR had failed to rectify the issue.

However GR is having none of that, saying that Wolf had no grounds to pursue recourse to the Bank Guarantee, has sought to engage with Wolf to address the Claim Notice in the short term and denies all liability in respect of the Claim Notice.

The news though is not welcome to GR shartholders which has decided to temporarily suspend its dividend policy until the issue is rectified.

“Unfortunately, recent developments associated with the Hemerdon Tungsten and Tin Project have called for GR Engineering to take prudent steps towards capital management until certainty emerges in relation to the recourse Wolf Minerals has sought to pursue against the Company,” GR Engineering’s Managing Director Geoff Jones said.

“These steps involve the temporary suspension of the Company’s dividend policy with no final dividend being declared and ensures the Company retains the financial capacity to pursue the best opportunities available to it in the marketplace.”

The Company will continue to inform the market in relation to its dealings with Wolf and in respect of the Claim Notice.

In more positive news for the company, GR delivered revenue of $238.7 million, net profit after tax of $12.9 million and earnings before interest tax depreciation and amortisation of $16.9 million for financial year 2017. The company also had net cash of $34.2 million at end of the period.

The mining services sector provides specialised services for mineral exploration, extraction and distribution.

This includes equipment manufacturers; engineering services; mine software products and other related equipment, services and technologies where the primary function is to support the mining and mineral extraction industries.

BesidesGR Engineering, some of the other big mining services companies include Ausdrill, Monadelphous, NRW Holdings, RCR Tomlinson and Macmahon Holdings.

Shares in GR were last trading at $1.20 at noon AEST.