THE financial woes of George Fisher Mine subcontractor Macmahon Holdings Ltd have stock market observers speculating was a takeover target.
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The Perth-based mining services company earlier this week said it would write down as much as $125 million in the six months ending June 30, on top of a first half charge of $130 million, sparking talk with its falling market value, currently at $60 million compared with more than $800 million three years ago, representing a bargain to a buyer.
Its shares have fallen 94 per cent since early 2012, making it a morsel for vultures that could sell its assets piecemeal. Unfortunately for investors left holding its stock, it could even fall more as rivals could buy it cheaply, amid low demand for used equipment.
George Fisher owner, Glencore, is expanding production capacity to 4.5 million metric tonnes a year from 3.0Mtpa and awarded Macmahon a $33 million contract for more than 3000 metres of decline extension and supporting infrastructure, along with crusher and conveyor expansion.
The contractor also provides support through its participation in the Doorn-Djil Yoordaning/ Tribal Mining Joint Venture, which trains indigenous workers.
Like the mining industry generally, Macmahon and rivals are feeling the pinch from lower commodity prices.
In past months, the company has shed staff, after losing contracts and in an effort to cut costs in response to changing market conditions.
Major blows to Macmahon most notable include the loss of a $260 million contract with Fortescue Metals, which represented about a third of its annual revenue, leading to the company, cutting its sales forecast, and a dispute with a Mongolian coal miner, which had stalled operations.
Analysts tip Macmahon as a likely target for predators brave enough to take a gamble, along with rivals Worleyparsons Ltd. and Bradken Ltd. A battle for the company may not be easy with builder Leighton Holdings Ltd holding a significant stake in Macmahon.
Macmahon said earlier this week it will slash the value of its equipment and inventory by between $95 million and $125 million, which will affect its full year pre-tax earnings.
‘‘The decision to make this impairment follows the cumulative effect of continued challenging market conditions for the mining services sector, and low demand and market prices for used mining equipment and inventory,’’ the company said in a statement to the Australian Stock Exchange.
The most recent charge follows the company’s $112 million first-half net loss, which included a $130 million writedown, which stemmed from continued low commodity prices and challenging market conditions. The latest charge brings total fiscal year 2015 writedowns to as much as $255 million.
Macmahon Chair Jim Walker argued last February the company had adapted to the cyclical mining market before in its 50-year history and would do so again.
CMC Markets strategist Michael McCarthy said he saw Macmahon as a possible loser in the current mining services industry shake-out currently occurring, because of its geographical exposure to higher-risk locations, such as Mongolia and Nigeria.
‘‘They are exposed to some marginal mines that could be shut due to lower commodity prices,’’ Mr McCarthy said.
‘‘So I suspect anybody who is interested in these assets is more likely to pick through the wreckage of the company, rather than try and take it out whole.
‘‘Anyone who wants this one could pick it up cheap.’’
Macmahon’s Australian projects also include Newcrest’s Mining’s Cadia gold project, near Orange, and BHP Billiton’s Olympic Dam, in South Australia, among others.
The company’s balance sheet last February, showed cash of $124 million, gross debt of $161 million and a low gearing ratio of 11 per cent.