Signs looking up for this mining contractor on back of Indonesia deal

Despite reporting a loss in earnings for FY2017, mining and construction services company Macmahon Holdings expects better things in 2018 on the back of its recent deal with Indonesian mining firm PT Amman Mineral Nusa Tenggara (AMNT).

Perth-based Macmahon (ASX: MAH) delivered a loss of $1.7 million for FY2017.

However, revenue gained 15 per cent to $359.6 million from FY2016, while net operating cash flow from operations was $30.2 million, up from $9.1 million in previous period.

Macmahon’s chief Michael Finnegan said the result was in line with guidance provided in February 2017.

“We have worked hard this year to prepare the business to capitalise on the opportunities ahead of us. With the exception of Telfer, which remains a key focus for us, all of our current projects are performing well and in line with our tendered expectations,” Mr Finnegan said.

Newcrest Mining’s Telfer mine in Western Australia has been a problem child for Macmahon with ongoing losses due to larger than expected start-up costs, difficult operating conditions and additional maintenance rectification costs for client-supplied equipment.

Macmahon now expects this contract to be reporting a monthly profit by December.

Mr Finnegan said a major development during the year was the transaction with Indonesian mining firm PT Amman Mineral Nusa Tenggara (AMNT).

“The AMNT Transaction will be transformational for Macmahon,” Mr Finnegan said.

“It has already delivered a much improved balance sheet and order book, and will enable us to pursue further work in the region from a position of strength, with the support of our largest shareholder,” he said.

In February, Macmahon was awarded a mining services contract at AMNT’s Batu Hijau Mine in Indonesia worth about $US2.9 billion.

The deal also involved Macmahon acquiring $US145.6 million worth of plant and equipment by issuing new Macmahon shares to a subsidiary of AMNT which now owns a 44.3 per cent stake in Macmahon.

Macmahon is currently tendering new work opportunities worth $6 billion and is in exclusive, preferred or shortlisted position for 45 per cent of its tender pipeline which suggests growth will continue in the year ahead.

Macmahon expects to achieve significantly improved results in the 2018 financial year.

Revenue for FY18 is forecast to be $620 million to $680 million, resulting in EBIT of between $40 and $50 million.

Spanish mining contracting giant CIMIC Group launched a hostile, off-market bid for Macmahon which valued the company at $175 million. However, Macmahon rejected the bid and then inked the deal with AMNT which blocked CIMIC’s move on the company.

Shares in the company were trading unchanged at 18c, valuing the company at around $218 million.