In a further sign of the waning resources boom, construction and mining company Macmahon Holdings has issued a stark profit warning and announced the resignation of chief executive Nick Bowen.
Macmahon said cost overruns with a rail project in Western Australia, as well as the expectation of fewer contract wins, meant its profit for 2012/13 would be about half that of the previous year.
Investors dumped the stock in response to the bleak outlook outlined on Wednesday, with Macmahon shares diving 38.7 per cent, or 20.5 cents, to 32.5 cents – their lowest level since July 2009.
The stock had been placed in a trading halt on Monday ahead of the profit warning, which came just four weeks after Macmahon confidently predicted a 20 per cent rise in earnings.
Macmahon was the worst-performing stock on the S&P/ASX200, and with 71.6 million shares changing hands it was the most-traded company by volume.
Macmahon’s share tumble mirrored that of Boart Longyear in August when the drilling services company fell 37 per cent after it cut earnings guidance.
The company warned its net profit for 2012/13 would fall to between $20 million and $40 million, well down from the $56.1 million in 2011/12.
The warning came along with the surprise announcement that Mr Bowen had resigned with immediate effect after 12 years as chief executive.
Morningstar senior equities analyst Ross MacMillan the profit downgrade was a big surprise, given Mr Bowen’s recent prediction of 20 per cent profit growth.
Mr MacMillan said Macmahon was the latest company highlighting mining and resources sector was heading into more difficult times.
“Certainly these sorts of announcements from mining services companies and companies that are involved in construction for mining companies seems to indicate the mining boom has passed, that we have passed the peak,” he said.
Macmahon said there were significant additional costs on its Hope Downs 4 rail earthworks contract as it threw extra resources to ensure the project could be substantially completed during the first half of 2012/13.
“This is extremely disappointing, especially in light of similar problems in recent years,” Macmahon chairman Ken Scott-Mackenzie said in a statement.
Macmahon said the major impact of the reduced earnings would be felt in the first half of 2012/13, while second half earnings were “projected to return to more normal levels”.
Moreover, the Perth-based company said it expected to win fewer new construction work contracts in 2012/13 given recent market volatility and the associated uncertainty relating to the commitment and timing of future projects.
“The number of contracts that are coming out from the mining companies, some are being delayed, deferred or postponed,” Morningstar’s Mr MacMillan said.
“There is a lot more competition we suspect for any new contract as well, which will have an impact on margins.”
Macmahon said Mr Bowen would be replaced by chief operating officer for mining Ross Carroll.
Mr Scott-Mackenzie said the board had accepted Mr Bowen’s resignation and thanked him for his leadership.
