Contractor hit by cancellations

KWINANA-BASED engineering and fabrication company Ausclad Group epitomises the challenges facing Western Australia's mining services companies: just when it completed the recruitment of a new senior management team, two of its clients have suspended major projects.

Ausclad, which is listed on the Singapore stock exchange as Ausgroup, advised the market this week that Apache Energy had cancelled a $43 million contract to fabricate the platform for the Reindeer gas project.

This followed last week's announcement that iron ore miner Fortescue Metals Group has suspended a $21 million contract for rail car dumpers and iron ore wagon indexers.

Engineering company Clough and civil contractor NRW Holdings are other Perth-based companies to be adversely affected by these project suspensions.

Ausgroup managing director John Sheridan, who joined the company a year ago, said contingency plans were being implemented to limit the impact of the suspended projects.

He acknowledged this would have an impact on Ausgroup's 2009 results and order book, which currently stands at $241 million.

"The impact of this termination has been partially offset by project scope growth on other existing contracts," he said.

The project cancellations follow three senior appointments in the past two months, to remedy what, Mr Sheridan said, could be ascribed to internal management weakness.

"The moves are a part of our investment in human capital to reduce the numbers of management oversight and develop leadership qualities beyond on-the-job training," he said.

"The need has long been recognised and investment in good people is our way to now position ourselves for the next stage of growth."

"A number of key quality personnel can elevate the whole caliber of management team."

The new recruits include Mike Gibson as executive general manager operations and Mark Williamson as general manager services.

Completing the trio is new group general manager people capital, Craig Hunter.

Mr Sheridan's appointment as chief executive last November was itself part of succession planning for the group.

AusGroup chairman Koh Soo Keong said at the time a younger leader could take the company through strong organic growth and the next phase of acquisitions.

Mr Sheridan said the group was confident of securing a number of projects, including major Woodside commissions, and also relied on its asset maintenance activities to stabilise its financial outlook.