Markets: Macmahon's warning bell

Macmahon has sent another chill through mining services companies. The stock slumped 20 per cent yesterday after it warned its 2014 financial year will be “challenging”.

Perhaps in sympathy, or for the obvious reason, other mining services companies also slid. WorleyParsons fell 2.1 per cent yesterday, Boart Longyear dropped 7.2 per cent and NRW Holdings declined 2.6 per cent. Along with Macmahon, few would be brave enough to be against similar falls. The world’s biggest mining company BHP Billiton said yesterday it expects to spend $US16.2 billion in its 2014 financial year, down $US5.5 billion or 25 per cent, from $US21.7 billion in 2013.

Global commodity prices in the year ahead, Macmahon notes, will deteriorate. Operating mines in such an environment are being put into care and maintenance. Project deferrals and closures will affect Macmahon and its brothers in arms across the mining services sector.

The answer, according to Macmahon chief executive Ross Carroll, is full steam ahead. The company plans to expand internationally. It as opened an office in gold-rich Ghana. The company sees Africa as a bright spot for potential work in surface and underground mining.

Macmahon has also sought to reduce its own costs and replaced members of its executive team with new personnel in the last 12 months in an effort to reinvigorate the company after deciding to ditch its construction business. Carroll joined the company as CEO after Nick Bowen’s resignation in September last year. Macmahon also has new chief operating officers for surface and underground mining.

All well and good. But as Carroll is undoubtedly aware personnel changes and a laser-like focus on costs may be all for naught if business is not there.