Macmahon gets $65m to exit Mongolia

Macmahon shares have jumped after the $US65 million sale of its Mongolian coal contract, but the mining contractor and industry’s short-term prospects are still viewed as bleak.

杭州桑拿

Macmahon expects to net $US62 million from the sale to an unnamed private company.

That is well below the $A100 million in forecast revenue from the project in 2015 alone.

However Macmahon had also been in a dispute with state-owned Erdenes Tavan Tolgoi over what Macmahon alleged was at least $US30 million in unpaid work in Mongolia.

The cost was greater than that, leading to work stoppages last year that contributed to Macmahon downgrading this year’s revenue guidance from $A750 million to $A1 billion, to $A750-$A850 million.

Investors were happy to see Macmahon get out of Mongolia, with its shares adding 2.2 cents, or 47.8 per cent, to 6.8 cents.

However the stock remains well below the 72 cents it was trading at three years ago.

OptionsXpress market analyst Ben Le Brun said Thursday’s sale was a good short-term balance sheet fix given Macmahon’s estimated $A160 million in gross debt and more than $A250 million in impairments so far this year.

However it was no substitute for real good news such as improvements in earnings or sales pipelines, he said.

It is a difficult trading environment for Australia’s large mining services industry, with peer Bradken reported on Thursday to be considering a $A400 million recapitalisation plan to get it out of trouble with lenders.

“Macmahon is in big trouble, selling the Mongolian operation to my mind reeks of desperation,” Mr Le Brun told AAP.

“Putting out the first fire of the debt load is positive.

“Selling crown jewels in the name of fixing your debt situation raises questions marks against the backdrop of the mining slowdown.”

Macmahon defended its balance sheet, saying it was now in a net cash position after the sale and had cut costs.

It also said it was tendering for more than a dozen projects worth $A2.2 billion.

Executive chairman Jim Walker said the Mongolia sale would help in its discussions with bank lenders, who began reviewing Macmahon when it lost a major contract at Fortescue Metals’ Christmas Creek mine.