Coal: Mastermyne sinks $7.6m into expanding underground services
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Mining contractor Mastermyne Group (ASX:MYE) is beefing up its underground coal mining offering with the $7.6m acquisition of Wilson Mining Services.
The company told investors today that it planned to buy Wilson for $3.8m in cash and the balance in Mastermyne shares.
Wilson, which has been in business for 25 years, provides chemical injection services and ventilation control devices.
The acquisition is expected to generate annual revenues of about $30m, at an EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 10 to 14 per cent.
Mastermyne says that level of contribution over a three-year period works out to be 3.3 to 4 times the total acquisition cost.
“WMS is a highly specialised underground business that has a niche service offering predominately in the longwall ground consolidation area,” Mastermyne CEO Tony Caruso said.
“This business pioneered the introduction of phenolic cavity fill and injection products which has greatly improved the safety and productivity of longwalls in Australia.”
Longwall mining is a form of underground coal mining where a long wall of coal is mined in a single slice.
Wilson’s products are used for cavity filling, air and gas sealing, fire fighting and stabilisation of highly fractured strata. The most common use is to fill roof cavities formed by longwall roof falls.
Mastermyne said the acquisition would be funded from its existing cash reserves.
The pickup in the mining industry is seeing contractors start to make money again.
Mastermyne expects FY19 revenue to be between $240m and $250m, which is a 19 to 24 per cent increase over FY18.
And EBITDA is tipped to rise year-over-year between 28 and 34 per cent to between $21m and $22m.
“The recent renegotiation of contracts and the improving production performance has set the business up to finish the year on a very positive note,” Caruso said in a market update in April.
“More pleasingly this means we will start the new financial year with a stronger margin run rate than we’ve seen for some time.”
Australia has no immediate plans to wind back its coal mining activity despite the opposition the industry faces.
The two largest coal mining states are Queensland, with 63 per cent of Australia’s black coal resources, and New South Wales, which accounts for about 23 per cent.
Earlier in August, the Queensland government opened up five new exploration areas with “high potential” for steel-making coal and thermal coal for electricity and industry.
The new exploration areas that have been released follow interest from resource companies, according to the Queensland government.