Contractors vie for Karara

The commodities meltdown has created plenty of collateral damage for the listed contractors as distressed mining clients scrap expansion plans and delay job extensions.The trend was evident over the past week with downbeat news from Macmahon and Brierty.The latter received a $12 million hit on Friday when Fortescue Metals Group terminated Brierty’s Cloudbreak mining contract six months earlier than expected.A few days earlier Macmahon unveiled a 41% slump in interim profit while downgrading its full-year outlook.But there could be better news ahead: Macmahon and Brierty are competing in a three-way shoot-out for the Karara mining contract, to be awarded by Gindalbie and its joint venture partner, China’s Ansteel.Finals tenders were recently submitted for the $1.8 billion hematite-magnetite operation at Karara, construction of which is being managed by Worley Parsons.The Metal Detective understands the mining contract is valued at roughly $850 million over six years, based on average material movement of 45 million tonnes per annum (30Mtpa magnetite and 15Mtpa hematite).It is believed that Macmahon – a joint venture between Brierty and Abigroup – and Downer EDI have submitted tenders for the job, to be awarded following final WA government clearances.The state’s Environmental Protection Authority is preparing a bulletin that will make a recommendation to WA Environment Minister Donna Faragher on the long-mooted development.“I am expecting a positive result, but it might be three or four weeks before we know the outcome,” Gindalbie chairman George Jones told Dow Jones Newswires last week.The other potential hold-up is Australia’s Foreign Investment Review Board, which is considering Gindalbie’s $162 million share placement to Ansteel.The latter deal effectively cleared the last financial hurdle for Karara when shareholders overwhelmingly backed it a few weeks ago.But Ansteel will nearly treble its ownership of Gindalbie to 36%, a result that may attract the attention of Treasurer Wayne Swan.Jones concedes he is “concerned” about FIRB delays, due to the emotional debate on Chinese investment spawned by the Rio Tinto-Chinalco and OZ Minerals-Minmetals deals.“I have no doubt the treasurer [Wayne Swan] is lumping all these [China deals] together and considering the whole picture,” Jones said.“I’m confident it will be approved; it is just time,” he said, adding that it “could be another month” before a decision is made.Like Jones, the Metal Detective believes that Swan – and WA’s environment minister – will see sense and approve the significant new iron ore project.In a climate where some other big mines are closing or winding back (BHP Billiton’s Ravensthorpe springs to mind), Karara would generate up to 1200 construction jobs, 500 permanent positions, and a long-term royalties stream.Iron ore is one of the few sectors still capable of generating major contracting jobs, despite analysts tipping a 20-40% price slump in the current round of benchmark talks.Gold work should be on the rise, given bullion’s stellar price performance in recent months, but the lack of discoveries means major new projects are scarce.As for Olympic Dam, base metals’ great white hope, the multi-billion dollar copper-uranium expansion looks like staying in the ground for many years yet following management and funding moves at owner BHP Billiton. Macmahon chief executive officer Nick Bowen can take some comfort from his decision, a few years back, to target bulk commodities as opposed to more volatile base and precious metals.But his iron ore and coal focus wasn’t enough to prevent December half profit sliding to $14.1 million, compared with $23.7 million a year earlier.Disappointingly, guidance for the firm’s fiscal 2009 annual profit was downgraded from $48 million to $40 million, due to production cutbacks in underground operations and wet weather impacting Queensland coal contracts.Broker ABN, which has a buy on the stock, says government work represents close to half the company’s $1.9 billion order book, with Rio Tinto and BHP accounting for a combined 27%.Macmahon may have relatively strong growth prospects in public infrastructure, but the mining order book has fallen by 26%, with “the short-term outlook remaining uncertain”, ABN said.Outside of Karara, emerging opportunities include BHP’s $US4.8 billion RGP5 expansion project, ABN said, where Macmahon is tendering in a consortium for $750 million of work.There are LNG opportunities, while Rio has “indicated that some of its iron ore expansion plans may come back online”, the broker says.Meanwhile, Macmahon is also looking at “redeploying its specialist underground expertise to areas outside mining (e.g., tunnels) and selected pursuit of overseas work”, the broker says.

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