Glencore could scrap $110m Cobar project
Barely two weeks after Australia's top commodities agency declared that investment in the resources industry had peaked, Glencore fired the contractor it had hired to expand a mine near Cobar.
When asked if the termination was a precursor to cancelling the expansion project, Glencore's local representatives said, "The company is considering its options with regard to the project."
As part of the expansion, a shaft was to have been sunk deeper underground in an attempt to lower production costs at the CSA Cobar mine, which mostly produces copper and silver.
Mining services company Macmahon Holdings was awarded the $110 million contract to sink the expansion shaft, but the company announced to the ASX on Wednesday that its contract had been terminated without an explanation.
In a twist, Cobar mayor Lilliane Brady said she received a phone call on Saturday informing her Macmahon had been dismissed from the mine on Friday - five days before this was declared to the ASX.
"I was in Sydney when I had a phone call to say Macmahon's had finished at Cobar mines," she said.
The termination will only exacerbate a bad year for Macmahon, which has forecast a $20 million loss for the year to June 30, after posting a $37.6 million loss in the six months to December 31.
The project was expected to deliver an extra $6 million in revenue to the company this month, and a further $80 million in 2013-14. About 70 jobs are believed to be linked to the expansion.
"Macmahon is currently seeking clarification on the reasons for, and consequences of, the termination," the company said.
The news pushed Macmahon's shares down 2¢ to 16¢.
While Glencore will now conduct a review of the expansion project, operations at the existing Cobar mine - where more than 300 people are employed - are expected to continue as normal for now.
Glencore appears to have longer-term ambitions for the region, having scooped up exploration territory nearby and a stake in an ASX-listed minnow, YTC Resources, which also has ground nearby.
Ms Brady said the mine, which has operated on and off since 1871, was crucial to the economy of Cobar. "[It] has always been the rock of town," she said.
If Glencore decides to scrap the expansion, it will continue a trend of companies deferring or cancelling spending on new resources projects in Australia.
Two weeks ago, the Bureau of Resources and Energy Economics said Australia had missed out on $149 billion worth of investment through 18 big resources projects being deferred or cancelled in the past year.
Frequently Asked Questions about this Article…
Glencore Xstrata has dismissed the contractor it hired to expand the CSA Cobar mine and said it is "considering its options with regard to the project." The $110 million plan involved sinking a shaft to lower production costs, but Glencore is now reviewing the expansion and has not confirmed whether it will proceed.
Macmahon Holdings announced to the ASX that its contract to sink the expansion shaft at the Cobar mine was terminated, but the company said the termination was made without explanation. Macmahon is seeking clarification about the reasons for and consequences of the termination.
Following the news, Macmahon's shares fell by 2 cents to 16 cents. The company had already forecast a $20 million loss for the year to June 30 and posted a $37.6 million loss in the six months to December 31, so losing the contract could further strain its revenues.
The project was expected to deliver about $6 million in revenue immediately and a further $80 million in 2013–14. Around 70 jobs were believed to be linked to the expansion.
According to the article, operations at the existing Cobar mine are expected to continue as normal for now. The mine employs more than 300 people and remains operational while Glencore reviews the expansion.
Yes. The article notes Glencore has acquired nearby exploration territory and taken a stake in ASX-listed YTC Resources, which also has ground near Cobar, indicating longer-term interest in the region.
If Glencore scraps the expansion, it would continue a recent trend of companies deferring or cancelling spending on new resources projects in Australia. The Bureau of Resources and Energy Economics reported that Australia missed out on $149 billion of investment because 18 big resources projects were deferred or cancelled in the past year.
Investors should watch for official ASX announcements and updates from Glencore about the outcome of its project review, and any clarification or further disclosures from Macmahon regarding the termination and its financial implications. These updates will provide clearer signals about revenue, jobs and longer‑term prospects tied to the Cobar project.
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