MACA: RESEARCH TIP UPDATES - May 2021

Published: 13 May 2021 / Issue 446

Sector: Mining services

Industry: Mining and civil services contractor

Add to watchlist

The recent weakness in Maca has been disappointing, but most importantly, our investment thesis remains, which is what value investing is about. When a stock goes down, you buy more, if you’re confident in the company’s underlying value. Let’s look at why we’re confident.

We will go into detail below, but the current demand for resources contract related work activity is strong with buoyant conditions for virtually all commodities. MLD has contracts involving commodities that include iron ore, gold, lithium and nickel.

A factor in the selling has been the mismatch between the timing of the equity issues, which increased the number of shares by 25%, and the earnings contribution from the $175m Mining West acquisition, completed on 1 February 2021.

MLD raised equity in December 2020 and a smaller amount in early 2021 as part of funding for the acquisition from Downer EDI (DOW). Earnings contribution spans only 5 months for FY21, but the following year will get the full 12 months from Mining West assets.

What will that contribution be? In FY20 Mining West revenue was $400m; EBITDA of $70m. The business contributed $0.9bn in contracted work in hand to MLD. Total WIH in February 2021 was $3.4bn.

A comfort is that four major contracts acquired in the Mining West acquisition have mechanisms for extensions; one of which has already been renewed. The contract with CITIC Pacific Mining at the Sino Iron Project, Cape Preston has been extended from April 2021 for a further 3 years and should generate $200m in revenue over this period.

Moreover, the news provides confidence for the renewal of the other major contracts. These include Ansteel Karara iron ore, which expires March 2022, Fortescue’s Eliwana project, which ends August 2025 and the Gold Road Gruyere gold mine to September 2023.

**After completion of Mining West acquisition