Macmahon Holdings today confirmed it plans to exit the construction industry and shift focus towards becoming a fully fledged mining contractor.
“The new focus will ensure we can further develop Macmahon’s existing end-to-end mining service model and continue to build a diverse commodity, geographic and client base within the resources sector,” Macmahon CEO Ross Carroll said.
The about face comes after the company today reported an earnings downgrade to the ASX and announced a fully underwritten 2 for 3 pro rata accelerated non-renounceable entitlement offer, in order to raise about $80.7 million.
Under a Memorandum of Understanding [MOU] Macmahon plans to transfer the majority of its current construction projects to Leighton Holdings for gross consideration of approximately $20 million.
In a statement today released by Leighton Holdings the company said they expect to acquire Macmahon’s construction projects for approximately $16.3 million.
“The exit of Macmahon from construction will allow them to focus on their core contracting mining business and to substantially reduce overheads,” Leighton CEO Hamish Tyrwhitt said.
The agreement will include all people and equipment associated with these projects.
In a separate statement released today, Macmahon said its construction business was not positioned to operate competitively into the future to deliver sustainable earnings.
“The sale of construction is expected to reduce the company’s earnings variability as Macmahon concentrates on the areas of its operations in which it has a proven capability to deliver consistently good results for its shareholders,” he said.
Carroll added that the sale to Leighton would enable more sustainable future results and that going forward mining will be Macmahon’s core focus as the company attempts to capitalise on its mining operations.
“The mining business has traditionally delivered strong results and our new direction will allow the company to focus more fully on supporting the growth and development of our mining operations,” he said.
Confident about the strategy, Carroll expects Macmahon’s secured order book to increase from $1.2 billion to above $4 billion as a result of expected contract extensions and the anticipated award of the Christmas Creek mine expansion project.
“With future revenue underpinned by a significant order book of secured and expected work, Mining will deliver approximately $1.2 billion revenue for FY13, increasing to around $1.4 billion in FY14.
In the statement Carroll said the Christmas Creek mine expansion is already ramping up and the Tropicana gold project is running according to plan.
“The mining business is strongly positioned for future growth.
“This refocus of our strategy is expected to significantly enhance Macmahon’s earning’s visibility and consistency,” he said.