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M&R secures R2.3bn Australian gold mining contract

Award further bulks up M&R existing record R60.5bn order book.
M&R group CEO Henry Laas. Image: Moneyweb

JSE-listed engineering and construction group Murray & Roberts (M&R) has further bulked up its existing record order by securing a R2.3 billion contract award in Australia.

M&R reported on Monday that RUC Cementation Mining Contractors, part of the group’s underground mining platform, had been awarded an about R2.3 billion contract for the shaft lining and equipping contract at Newmont Corporation’s Tanami Expansion 2 project in Australia’s Northern Territory.

Newport is the world’s largest gold producer.

M&R said capital investment in the mining sector continues mainly in brownfield expansions although it is expected that investment in new mines will return from mid-2021 onwards.

“The group’s mining platform holds a leading position in most major regional underground mining markets in the western world and is well positioned to benefit from the expected improvement in market conditions,” it said.

Order book

The contract award follows M&R reporting at the beginning of March 2021 that its record order book of R60.5 billion at end-December 2020 could grow by about 32% to about R80 billion by end-June 2021.

M&R group CEO Henry Laas said during the group’s financial results presentation that the group had R19 billion in near orders that must still find their way into the order book and all these were sole source opportunities.

Near orders are defined by M&R as projects that have been secured and are only subject to the contract between M&R and the client being concluded.

M&R announced another material contract award this month to its Australian subsidiary Clough, the trading brand of M&R’s energy, resources and infrastructure (ERI) platform.

Clough was selected as head contractor for the construction of the main works of the Lombrum Infrastructure Project in Papua New Guinea (PNG), a joint initiative of the Australian and PNG Governments to redevelop the Lombrum Naval Base.

M&R said the about R2.5 billion scope of work was developed and agreed in consultation with the Papua New Guinea Defence Force and includes the construction, support, maintenance and repair services of the Lombrum Naval Base, located in Manus Province in Papua New Guinea.

Apart from these two contract awards, Laas confirmed during the group’s financial results presentation this month that four underground mining platform near orders valued at R1.1 billion and two ERI platform near orders valued at R1.2 billion had already moved into the group’s order book since the end of M&R’s interim reporting period to end-December 2020.

This means M&R has announced new contracts collectively valued at R7.1 billion that must be added to its order book.

These new contracts comprise 37% of R19 billion in near orders that Laas indicated still had to find their way into the group order book by end-June 2021.

M&R spokesperson Ed Jardim said on Monday it is not possible to comment on the current size of M&R’s order book because the group had not yet done its quarterly assessment of its various businesses.

Award timelines

But Jardim said a challenge the group is experiencing is that clients are taking longer to award projects.

“It’s not that we don’t see the projects coming our way or that clients are not certain of it any more. It’s just the timeline of the award that is moving out.

“We are still expecting more awards before the end of our financial year … but are reliant completely on the client’s timeline,” he said.

Jardim added that the Newport Corporation contract award announced on Monday should have been included before M&R published its interim financial results but got pushed out by two months.

He said the timeline of another near order that has moved out is the Perdaman Industries’ urea plant project on the north-west coastline of Western Australia, which on its own is a R19 billion contract.

“Clough has been announced as the preferred contractor but the project is still subject to a final investment decision being reached,” he said.

Clough is in a 50/50 joint venture with Saipem for the development of this project, which will have a three-year construction period.

Comment

Peregrine Capital executive chair David Fraser said on Monday it is one thing to build the order book but M&R has got to deliver it and deliver it properly.

“Good for them but let’s see them deliver it at a decent margin,” he said.

“It will be important to monitor the progress of these contracts over the next few years. These are big numbers for a company that doesn’t have such a big balance sheet at the moment,” he said.

Marc Ter Mors, the global head equity research at SBG Securities, said earlier this month after M&R’s financial results presentation that they are quite excited about the group’s prospects.

“Assuming there are not any hiccups in all the large contracts in the energy, resources and infrastructure division, the growth recovery could be quite exciting,” he said.

Shares in M&R rose 0.37% on Monday to close at R10.74.

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