Forge reveals profit wipe out of up to $28m

Mining services company Forge Group is expecting to be struck by an additional $23 to $28 million profit writedown for this financial year.

Forge told investors it is incurring heavy losses from the West Angelas Power Station project which has run over budget and missed delivery schedules.

“The company has identified previously unplanned scope and subsequent unplanned and extended delivery durations which are forecast to result in additional costs to complete,” Forge stated.

Additional costs include extra engineering, construction and site establishment costs.

The company said $14 to $19 million net cash outlay is still required to complete the project explaining existing cash and facilities will be allocated.

First fire of the project’s gas turbines is expected to be completed this financial year with commissioning to begin next financial year.

“I regret having to inform shareholders of this additional deterioration in profit for FY2014,” Forge managing director and CEO David Simpson said.

Simpson said the company is operating in a tough market marred by heightened competition and miners cutting costs.

“Overall market conditions remain difficult with increased competition and a general tightening of the resources market,” he said.

Forge entered into a trading halt on January 10 pending today’s market announcement.

In November Forge told investors it expects profits to be well below guidance this financial year, revealing a $127 million write down which it attributed to two power station projects.

At the time the company said an internal review had "identified concerns in relation to the underperformance" in relation to its $420 million Diamantina contract in Queensland and its $150 million contract with Rio Tinto at the West Angelas iron ore mine in Western Australia. 

To date Forge has found $10 million worth of cost savings across the organisation and expects to cut a further $5 million before the financial year is out.

Adding there is a further $5 million in one-off items expected to be achieved in FY14.

“These initiatives remain on track and will not impact ongoing business operations or project delivery,” the company said.

In September Forge was awarded a contract to complete engineering and construction works at Gina Rinehart’s Roy Hill project under a joint venture agreement with Spanish engineering, procurement and construction firm Duro Felguera.

The company today confirmed new bonding facilities are in place to complete full bonding for Roy Hill.

“Support provided by our financiers and other key stakeholders gives Forge Group the confidence to continue to trade on a business as usual basis and deliver on our current work in hand,” Simpson said.

The company said it doesn’t expect to pay any dividends during FY2014.


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