Shares in Macmahon Holdings received a much-needed boost on news it had won its biggest-ever mining services contract with Fortescue Metals Group.
Macmahon sealed a $1.8 billion contract to supply a raft of services Fortescue needs to expand its Christmas Creek iron ore mine in Western Australia’s Pilbara region.
The deal cements Macmahon’s plan to concentrate on mining contract services after it agreed a $20 million deal to sell its construction arm to Leighton Holdings last December.
Shares in Macmahon soared by 16 per cent in early trade and finished trade on Tuesday up 1.5 cents, or 5.9 per cent, at 27 cents.
IG Markets analyst Stan Shamu said the stock was coming off a low base, having dropped significantly in the past six months.
“Of course, with miners slowing down then there was the fear that it would only be small contracts that they would win so any contract win is always considered a positive in that sort of environment,” he said.
Under its five-year contract with Fortescue, Macmahon will provide drill and blast services at Christmas Creek as well as ore harvesting, equipment maintenance and other services.
The contract miner has hired 600 workers for the project, with 500 already on site.
Macmahon chief executive Ross Carroll said the contract brought the company’s mining order book to $3.6 billion, the highest level in its history.
“This is an exciting project that builds on the existing success of our surface mining operations, securing a stronger foundation for the company’s mining-focused business over the next five years,” he said in a statement on Tuesday.
Macmahon expects to draw on its recent $80 million equity raising to help fund the $30 million it believes it will spend while working on the mine expansion project.
Fortescue chief executive Nev Power said the Christmas Creek expansion was a key component of the company’s expansion plan to produce 155 million tonnes of iron ore per annum by December 2013.
News of the deal comes weeks after Macmahon agreed to sell its construction arm Leighton, its biggest shareholder, last December.
However, it had been fending off a rival $25 million offer for the business from India’s Sembawang in recent weeks.
At the time of the Leighton deal, Macmahon said it wanted to become a dedicated full service mining contractor.
Macmahon has been undertaking a major restructure in an attempt to reverse a slide in its earnings.
Chief executive Ross Carroll flagged in December that Macmahon would make substantial writedowns on its construction business, a move which would reduce the group’s net profit for 2012/13 to between nil and $25 million.
The earnings warning came three months after his predecessor Nick Bowen shocked investors with news that Macmahon’s profit for this financial year would be about half the $56.1 million reported in 2011/12.