https://www.afr. com/companies/mining/drill-bill-spat-hits-rowsthorn-outfit-mitchell-services-20210214-p572bt
Drill-bill spat hits Rowsthorn outfit, Mitchell Services
Liam WalshReporter
Feb 15, 2021
A gold mining contract has blown up into an $8.5 million dispute entangling one of Australia’s veteran drilling families and transport industry veteran Mark Rowsthorn.
Mitchell Services, a 101-rig operation based out of Brisbane, has abruptly cancelled a contract it had to supply drilling services to contractor SMS Mining Services for the Kirkalocka gold mine in mid-Western Australia.
Mitchell Services has told investors it would cop a $7.3 million impairment charge on money owed.
The move cratered 20 per cent off Mitchell Services’ share price on Friday, down 11¢ to 46¢.
“The decision to terminate was reached on the basis that the client had continually failed to pay invoices that were due and owing to [Mitchell Services] pursuant to the contract,” Mitchell Services said in a quarterly report.
That client, SMS Mining, is part of the Rivet Group, whose executive chairman is logistics outfit Toll Holdings co-founder Mr Rowsthorn.
But the web of related parties thickens further because the actual gold mine is owned by
Adaman Resources – whose key shareholders are SMS Mining, another Rivet company and Mitchell Group, a private company that itself owns 18 per cent of Mitchell Services.
The chairman of both the privately owned Mitchell Group and ASX-listed Mitchell Services is Nathan Mitchell, a drilling sector veteran who has been involved in operations from Indonesia to Zambia. Nathan’s father, Peter, who started out in 1962 as an oilfield seismic “jug hustler”, created the first Mitchell drilling operation.
Mark Rowsthorn is the executive chairman of the Rivet Group, which includes SMS Mining. AFR
But now the focus is on how a contract bill of $8.5 million could be accumulated by Mitchell Services.
The 700-employee company, which drills for commodities from coking coal to copper, did not return calls but told investors it would cop a $7.3 million impairment charge on money owed.
The impairment is because of the problems with the contract, which was announced in July 2019 as a five-year deal worth almost $33 million and expanded the business’ footprint within Western Australia.
“Based on the most recent activity levels at this site, it is anticipated that in the absence of other contract wins, the termination will result in a monthly revenue reduction of approximately $1.2 million in the short term,” Mitchell Services said.
“Alternatively, the company may determine to sell the relevant rigs.”
Calls to Mr Mitchell and the mine company were not returned. At Rivet’s office, Mr Rowsthorn declined to comment other than to say: “It’s a commercial issue.”
The gold mine, located 590 kilometres north-north-east of Perth, was acquired by Adaman Resources in 2018, and it said it had since secured $55 million in project funding.
Mitchell Services said it generated an operating cash flow of $6.3 million in the past quarter, revenue of $46.8 million and earnings before interest, tax, depreciation and amortisation of $2.1 million.
Demand for drilling was forecast to remain strong, particularly with gold prices high and “numerous new projects and exploration programs … commencing”, it said.
On an unaudited basis, Mitchell Services said revenues for the past half-year had risen 37 per cent to $100 million, but EBITDA had fallen 12 per cent to $12.5 million with the impairment.
Mitchell Services has previously also incurred sizeable depreciation charges as it acquired rigs – its $14.15 million EBITDA result for 2020’s first half was chewed down by a $7.1 million depreciation and amortisation charge, with statutory profits at $4.3 million.
The company has also previously listed a string of related party deals.
In the past
full year, it disclosed almost $8.1 million in related-party deals, including hiring equipment from an entity partly owned by Nathan Mitchell. Mitchell Services has maintained that proper corporate governance processes are followed and the deals were good for Mitchell Services.
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