Macmahon cancels Calabar contract, warns of earnings hit

Perth-based contractor Macmahon Holdings has flagged a hit to its earnings for the year after terminating its contract in Nigeria and incurring losses at Newcrest Mining’s Telfer gold mine in WA.

Macmahon said operations at Calabar in Nigeria would end later this month, with demobilisation from the site to commence immediately after.

“The contract was scheduled to conclude in 2018, but has been underperforming due to ongoing low mining volumes linked to the client’s production plant and high rental maintenance costs,” the company said in a statement.

The move also follows an incident at Calabar in June, when seven Macmahon employees were kidnapped amid a shootout between militants that left one Nigerian Macmahon employee dead.

“Project closure costs are still to be determined but the costs are expected to be borne in H1 2017,” Macmahon said.

Macmahon also reiterated that it has been incurring losses at Newcrest’s Telfer mine since work started in February, due to larger than expected start-up costs, harsh operating conditions and added maintenance rectification costs for equipment supplied by Newcrest.

Macmahon received the contract for open pit mining and bulk earthworks (as well as related services) at Telfer in November last year.

“Macmahon remains in discussions with its client regarding options to mitigate these issues,” it said.

“Operational performance at Telfer is also expected to be to plan by the end of the financial year, however will negatively impact FY17 results.”

Macmahon shares were 4.1 per cent lower to 11.5 cents each at 10:50am.