MARKETS SPECTATOR: Macmahon's contract kill

Resources services company Macmahon is the latest in the category to experience a contract termination - this time at Cobar's mine in New South Wales.

Just when some may have thought it safe again to look at pummeled mining services stocks, Macmahon Holdings said a customer had cancelled a contract. In February the company said it had a “record order book”.

At 1143 AEST Macmahon’s shares were down 1.5 cents, or 8.3 per cent, to 16.5 cents, after falling as low as 15.5 cents. The stock has lost three quarters of its market value since August 20, 2012 when it was trading at a 52-week high of 57.64 cents.

The benchmark S&P/ASX200 Index was down 62.908, or 1.3 per cent, to 4837.90.

Macmahon told the ASX this morning Cobar Management yesterday terminated its shaft sinking project at the CSA mine in New South Wales. The CSA project was expected to contribute $6 million of revenue to the company by June and $80 million in the 12 months to June next year.

Since May there has been a slew of dismal news releases by mining companies.

WorleyParsons said on May 17 that its 2013 net profit may be as low as $320 million compared with $345.6 million in 2012. WorleyParsons chief executive Andrew Wood told Markets Spectator last month the pace and size of project cancellations by mining companies since February had surprised him.  

On May 21 Transfield cut its net profit forecast by almost a third, to as low as $62 million from as much as $90 million.

In perhaps a sympathetic response to Macmahon’s plight, Transfield Services shares fell to a 52-week low today of 83 cents. At 1146 AEST Transfield shares were down 2.5 cents, or 2.9 per cent, to 83.5 cents. WorleyParsons’ stock had dropped 42.5 cents, or 2.1 per cent, to $19.965.

Since its 52-week high on September 28, 2012 Worley Parsons shares have dropped 29 per cent. Transfield’s stock is down 60 per cent since its 52-week high on February 18. Meanwhile, the S&P/ASX200 Index has gained 20 per cent in the last 52 weeks but just 4 per cent since the beginning of 2013.

Macmahon warned investors on February 27 it expected to report a net loss of between $10-20 million. Its loss in the first six months of its 2013 financial year was $37.6 million because off its discontinued construction business.

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