Macmahon Holdings’ shares have been smashed in early trading, falling by about 40 per cent after it was disclosed late on Friday that it had lost a major contract at Fortescue Metals Group’s Christmas Creek mine.
Macmahon Holdings’ shares have been smashed in early trading, falling by about 40 per cent after it was disclosed late on Friday that it had lost a major contract at Fortescue Metals Group’s Christmas Creek mine.
Fortescue announced after the close of trading on Friday that it planned to consolidate mining at Christmas Creek into a single contract, with Downer EDI the winner.
Macmahon said the Fortescue contract contributed about $260 million to annual revenue, which equated to about one-third of the company’s total revenue.
Executive chairman Jim Walker said Macmahon would move quickly to restructure its business to accommodate the reduction in revenue, implying more job cuts and belt tightening.
The company’s revenue forecast for the 2014-15 financial year is now in the range of $600 million to $700 million.
This marks the second downgrade in three months.
At the annual meeting in November, its FY15 revenue was downgraded to a range of $750 million to $850 million; it had previously been anticipating revenue of up to $1 billion.
By comparison, the company reported total revenue of $1.02 billion in FY14.
Macmahon said it would need to review its banking arrangements in light of the contract loss.
Fortescue said the contract awarded to Downer, covering Christmas Creek 1 and Christmas Creek 2, was worth about $650 million, through to its expiry in September 2016.
Curiously, Downer had a different valuation, saying in a statement today that its new contractual arrangements with Fortescue were valued at about $720 million.
The new arrangement will take effect from April 20, after a two month transition.
Fortescue said the consolidation would allow better utilisation of equipment and resources at Christmas Creek, significantly reducing mining costs and improving efficiency.
“This represents yet another step in Fortescue’s concerted drive to increase our global competitiveness,” the miner’s chief executive Nev Power said.
The contract loss is the latest in a string of bad news for Macmahon.
It comes two weeks after the company said it would incur a pre-tax charge of up to $135 million, based mainly on writing down the value of equipment, goodwill and inventory.
At the time, Macmahon said it had completed a review, which found that “demand for the company’s services will remain subdued for longer than anticipated”.
It comes one month after the resignation of chief executive Ross Carroll. His executive duties are being filled by chairman Jim Walker until a new chief executive is appointed.
Fortescue’s decision comes one year after Macmahon announced the loss of its Orebody 18 contract, after BHP Billiton decided to take that work in-house.
The contractor had employed 200 people on the Orebody 18 contract.
Its biggest continuing contract is at AngloGold Ashanti’s Tropicana gold mine.
Mr Carroll told Macmahon’s annual meeting in November that Christmas Creek and Tropicana “underpin the business”.
“Over the past 12 months we have lifted both our productivity and safety performance on these projects are we are continuing to invest significant time and effort into improving our performance,” Mr Carroll said.
The company’s shares fell by as much as 2.5 cents to a low of 3.1 cents, before lifting a little to 3.4 cents at 8.30am Perth time.
