Maca revenue hit by Arrium mine closure

Mining and civil engineering contractor Maca has downgraded its full-year revenue guidance by $30 million after Sydney-based miner Arrium said it was closing one of its South Australian mines.

Nearly 600 jobs will be axed as a result of Arrium’s decision to close its Southern Iron project, which is due to falling iron ore prices and increased uncertainty around the timing and extent of price recovery.

Arrium also flagged more than $1.3 billion in writedowns.

The company, formerly known as OneSteel, will keep its lower-cost Middleback Ranges operations open.

"The business is able to move to a lower cash cost operation through its flexibility to alter volumes, grade and costs," chief executive Andrew Roberts said.

Arrium also said it would look to cut total production costs by 20 per cent to around $57 per tonne by 2016.

As a result of the shutdown, Arrium will take a one-off $1.34 billion hit to its half-year result, including a $1.17 billion impairment charge related to Southern Iron and and $130 million charge linked to its steel and recycling business.

The company said annual production would fall from about 12.5 million tonnes to about 9 million tonnes.

It expects its underlying earnings for the six months to December 31 to be between $180 million and $190 million.

As a consequence of the mine closure, Maca, which provides load and haul, drill and blast, crush and screen and train loading services to Arrium, said its full-year revenue guidance would fall by about $30 million, to $620 million.

“Whilst this lower revenue expectation will impact on the earnings outlook, Maca anticipates that net profit after tax for the 2015 financial year will exceed that which was achieved in FY14,” the company said in a statement.

“Maca will meet with Arrium as soon as practicable in order to discuss the contractual implications of its decision to mothball operations and ensure a safe and efficient ramp down.”

Meanwhile, Sydney-based logistics business Qube Holdings also said it would be affected by Arrium’s mine closure, but it wouldn’t materially impact its full-year earnings.

“Qube’s contract with Arrium provides for demobilisation and redundancy costs to be paid by Arrium on early termination of the contract,” the company said.

“In addition, there are compensation arrangements in relation to the assets deployed by Qube for the contract. As such, this development will not have a material adverse impact on Qube’s financial position.”

However, Arrium stated that it was in discussions with its contractors at Southern Iron to “mitigate the extent of break fees and costs” as a result of the mine closure.

“Total costs are yet to be finalised and are expected to be spread over about two and half years, being the remaining term of the Southern Iron agreements,” Arrium said.

“A payback of less than one year is targeted. It is expected restructuring cash costs of about $70 million will be incurred in the 2015 financial year.”

Arrium’s mine closure is another hit to MACA’s work in hand position after Rosslyn Hill Mining announced earlier in the week that it would be winding down at its lead operation at Paroo Station near Wiluna in the coming month.

That was partially offset with a new $9 million deal to provide services to Doray Minerals at its Meekatharra gold project.

Maca said work in hand remained in a strong position of $1.4 billion.

Shares in Maca were 8.2 per cent lower at 89.5 cents per share at 10am.

The changes will not affect BGC Contracting, which operates other Arrium mines that are continuing.