Macmahon hands over building to Leighton
MINING contractor Macmahon Holdings is pulling out of the construction business and tapping investors for $80.7 million as it tries to reverse a slide in earnings.
Macmahon on Wednesday outlined its new strategy to investors, saying it would become a dedicated full service mining contractor.
It has signed a $16.3 million deal with Leighton Holdings to take over the bulk of its construction projects, including equipment and staff.
It will also undertake a fully underwritten $80.7 million capital raising to strengthen its balance sheet after heavy writedowns on its construction business. The moves come after a review of Macmahon's businesses and costs, which has led to the axing of up to 50 jobs.
Chief executive Ross Carroll said Macmahon had been forced to make substantial writedowns on its construction business, and as a result the group's net profit for financial 2013 would be between zero and $25 million.
Macmahon expects to be hit by one-off costs of about $10 million as a result of its restructuring, and redundancy and closure costs.
The latest earnings guidance comes after former chief Nick Bowen shocked investors in September with news that its profit for this financial year would be about half the $56.1 million reported last year.
Four weeks earlier, Macmahon had confidently predicted a 20 per cent rise in profit.
But Macmahon has suffered cost overruns at its Hope Downs 4 rail project in Western Australia and expects fewer contract wins amid a slowing in the mining boom.
Mr Carroll said with the new strategy in place, Macmahon's mining business would deliver about $1.2 billion in revenue for 2013, increasing to $1.4 billion in 2014.
The offloading of the construction business would also help reduce the volatility in Macmahon's earnings.
"Mining already has a secured order book of $1.9 billion and, with expected contract extensions and the anticipated award of the Christmas Creek Mine expansion contract, this figure is expected to rise to above $4 billion," Mr Carroll said.
Under the deal with Leighton, Macmahon will retain projects nearing completion as well as residual exposure to its share in the South Road Superway project and the Trangie Nevertire irrigation scheme.