macmahon to sell off construction to leighton, page-2

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A sale of the construction arm would be a major break from Macmahon's history.

Brian Macmahon established the firm as a civil construction business in Adelaide in 1963, and it has since grown to a national operation.

But uncertainty over construction jobs and problems with the construction of earthworks at Rio Tinto's Hope Downs project forced the company to more than halve its profit guidance in September. That news led to a 40 per cent plunge in the share price and prompted the resignation of then chief executive Nick Bowen.

The downgrade was announced just weeks after the contractor had forecast a 20 per cent uplift in earnings.

Since then, the new chief executive, Ross Carroll, has been reviewing capital and operating expenditure and overheads, seeking annual cost savings of more than $10m.

Macmahon is also expected to announce an equity raising, assisted by Macquarie Capital and Deutsche Bank.

Adam Michell, an analyst at investment bank Moelis, said that although the company had had trouble with its construction business, the raising could support recent wins in contract mining.

"The company has been very successful in winning some major mining contracts, (including) Christmas Creek for Fortescue - a $1.8 billion, five-year contract, giving nearly $400m a year of revenue," Mr Michell said.

"That would require a fairly hefty fleet that would require a lot of money spent on equipment."

Macmahon and German partner Operta also received a contract for coalmining at the Tavan Tolgoi mine in Mongolia.

The five-year deal was worth more than $US500m.

At the time, the Australian contractor said it was talking to potential financiers over funding for equipment for an increase in contract production rates.

The latest announcements follow other troubles at Macmahon, including a "first strike" being lodged against the board's remuneration report at last month's annual general meeting.

Macmahon shares last traded at 26.5c.

The company did not respond to calls from The Australian about the sale.