Macmahon Holdings Reaffirms FY20 Guidance
Coronavirus has had a massive impact worldwide and has shaken investor confidence in many industries. Yet, within the materials sector, Macmahon Holdings (ASX: MAH) has reaffirmed its pre-pandemic guidance levels after an AUD700 million deal for Byerwen coking coal mine. Byerwen Coal Pty Ltd with QCoal Group and Japanese JFE Steel has extended Macmahon’s contract to 2023 with a 2-year option to continue, which will help the company deliver it’s AUD1.3 to AUD1.4 billion dollars in revenue and AUD85million to AUD95million earnings before interest and taxes (EBIT). This is good news for the 430 people that work on the Queensland site and excellent news for investors. Furthermore, FY21 will see the company having won approximately AUD1.2 billion, excluding the AUD120 million per annum, which is generated by short term civil engineering projects.
The new contract is geared toward expansion of production to 10 million tons of hard coking coal per annum. This criteria for success should be fully realised by July 2020, with a 2-year option possibly generating AUD1 billion in total. However, it should be noted that the cost of doing business will be AUD16 million on equipment costs, with an extra AUD37 million for specialised hydraulic excavators. This good news comes in the wake of another piece of good news, where minimal impact was felt by COVID-19. Now that businesses are opening up and grants are being handed out by the government, the steady uptrend of MAH stock during COVID-19 looks even stronger with demand recovering.
In late April, MAH was appointed as the preferred mining contractor for Coburn mineral sands project in Western Australia by Strandline Resources (ASX: STA). Over the coming months, STA and MAH will work together to hash out the finer details of the contract and how to go about development, which will include re-contouring the land, transferring materials and other earthwork related details. Should the contract go through, MAH should have a 5-year deal in their hands.
The company has a long history of selective mining operation, which has seen them work across a whole range of commodity mining. Over the past two years, MAH has seen growth in both earnings and return on equity. The positive trajectory of the company can be retraced to their 1H19 first half results, showing a jump from AUD270 million to AUD542.2 million, or a 101 per cent increase. Earnings before interest and taxes rocketed up from AUD9.7 million to AUD39.9 million, or a 311 per cent increase. Fundamentally, the business seems generally sporadic, however this is due to some years of unimaginable growth. With the recent reaffirmation of guidance, and new mining contract, MAH looks to have a scintillating future.
By Timothy Geldard
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