What value does one place on the Rinehart contract?
Forge shares soar on Rinehart contract ANDREW BURRELL THE AUSTRALIAN DECEMBER 31, 2013 12:00AM
FORGE Group chief executive David Simpson has attempted to scotch rumours that the embattled contractor is a takeover target, describing yesterday's stunning 55 per cent share price boost as a sensible market response to the group's "steady" turnaround.
Shares in Forge soared after the company told the market yesterday it had won more work at Gina Rinehart's planned $10 billion Roy Hill iron ore project in Western Australia's Pilbara region.
But the spectacular rally prompted a "please explain" query from the Australian Securities Exchange for the second time in two trading days.
Perth-based Forge told the Australian Securities Exchange it was unaware of any information that had not been announced to the market that could explain the run in the share price and a big increase in its trading volumes.
Mr Simpson told The Australian later he believed the share price boost across the past week -- during which the stock has almost doubled in value -- was driven by a December 17 announcement about $40 million in new contracts in North America, as well as yesterday's Roy Hill news.
More than 70 million shares have changed hands in the past four days and a Perth newspaper reported last weekend there was speculation of a takeover bid for Forge.
But Mr Simpson said the report was inaccurate. He said Forge shares had been trading at less than one times earnings before the recent rally.
Forge's shares plummeted nearly 90 per cent in a single day late last month after the group emerged from a three-week trading halt to confirm severe problems with two power station contracts in Queensland and Western Australia would force it to wear a $127m writedown.
Forge's cash squeeze led to the ANZ Bank rescuing it from possible insolvency by negotiating a new debt facility.
The Forge sell-off was one of the bloodiest examples of the carnage that has been inflicted on the mining services sector in recent months.
FGE Price at posting:
$1.37 Sentiment: None Disclosure: Held
