More coverage:MICHAEL SMITH FINANCIAL REVIEWIt has been awhile...

More coverage:

MICHAEL SMITH FINANCIAL REVIEW


It has been awhile since mining contractor Macmahon Holdings had any good news so it is no wonder the company is trying to maximise the noise around winning a whopping $1.8 billion contract for work on Fortescue’s Christmas Creek mine expansion.

Macmahon shares jumped 12 per cent off a low base on the news this morning but the win was already highly anticipated. Macmahon was named preferred bidder for the contract on October, sending it shares up more than 10 per cent at the time.

The five-year contract to provide open-cut mining services for Fortescue brings the company’s order book to $3.6 billion and is crucial for Macmahon’s new incarnation as a dedicated mining contractor. A failure to secure the contract would have further pummelled its share price.

Wins like this are hard to come by in the current environment. Macmahon hopes to win work on Hancock Prospecting’s Roy Hill project which is still seeking financing.

The priority for Macmahon at the moment should be doing the right thing by its shareholders as it seeks to offload its construction business to its biggest shareholder, Leighton Holdings. That process has been mired in controversy because of a very public rival offer from Singapore-based Sembawang Engineers and Constructors.

Macmahon’s independent directors are backing the Leighton bid, which is lower on paper than the offer from Sembawang. They are in a difficult position as granting Sembawang access to the books could potentially breach a deal it made with Leighton last year while negotiating a rescue package for the company.

However, they are right to say Sembawang’s offer is highly conditional. There is a lot of uncertainty surrounding Sembawang’s intentions. Macmahon directors are under a lot of pressure not to dismiss a rival proposal which has angered some shareholders.

There is no doubt Leighton is getting the business on the cheap. Independent expert Ernst & Young said as much this week when it labelled the deal as not fair but reasonable. It also noted that the potential advantages from selling to Leighton outweigh the disadvantages which is exactly why Macmahon have pursued the deal in the first place.

Investors will still have the final say when they vote on the Leighton deal next month.