15/09/2016 - 15:12

Downer wins $250m of mining contracts

15/09/2016 - 15:12

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Downer has announced major contract wins at the Boddington gold mine and Karara Mining, with the latter signalling that the loss-making iron ore project is likely to continue operating.

Downer's contract for blasting work at the Karara project has been extended Photo: Christian Sprogoe Photography

Downer has announced major contract wins at the Boddington gold mine and Karara Mining, with the latter signalling that the loss-making iron ore project is likely to continue operating.

ASX-listed Downer said today it has won five contracts valued at more than $250 million.

At Karara, it has won a three-and-a-half-year extension to its blasting contract, which commenced in 2012.

The contract includes options for two, two-year extensions.

Its signing coincides with news this week that Karara Mining, which is majority owned by Chinese steel producer Ansteel, incurred a $1.7 billion loss for the year to June 2016.

This resulted from a $1.2 billion write-down of Karara’s namesake iron ore project in the Mid West, along with operating losses in excess of $310 million.

The big operating loss occurred despite Karara earning $710 million from iron ore sales, which makes it one of Western Australia’s top 20 exporters, according to the BNiQ Search Engine.

Karara is one of two magnetite producers in WA, along with Citic Pacific’s Sino Iron project in the Pilbara.

Both incurred big cost blowouts during construction, with Karara costing just above $3 billion to build, and they have subsequently been hit by low iron ore prices.

Karara’s poor performance has led to speculation the project may be mothballed, with the company itself telling staff in January that Ansteel was unable to continue providing funding support.

Since then, Karara has obtained additional working capital by securing a $US200 million loan from a Chinese development bank with a 35-month maturity.

That was after refinancing $US1.48 billion of existing debt in May last year.

The debt negotiations, along with the Downer contract extension, are signals that Ansteel will continue operating Karara while it endeavours to bring down costs and lift efficiency.

The Downer contracts announced today included one new blasting contract, at Boddington.

The three-year contract with Newmont includes the customisation and ongoing management of an onsite emulsion manufacturing facility.

Downer also announced a five-year extension of its existing blasting contract at Grange Resources’ Savage River mine in Tasmania.

In addition, Downer has won an underground mining contract at Newmarket Gold’s Fosterville project, while its ReGen business has won a water and land management contract at the Century mine.

Chief executive Grant Fenn said the contract wins highlighted Downer’s broad capabilities in mining services.

 

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