Article in The Australian...

Article in The Australian today:http://www.theaustralian.com.au/business/wealth/contract-miner-maca-flavour-of-the-month-mac-services-group/story-e6frgac6-1225942445779

Contract miner MACA flavour of the month: MAC Services Group

* FLOAT WATCH: Tim Morris
* From: The Australian
* October 27, 2010 12:00AM

FEARS over proposed tax hikes for the resources industry have eased during recent months and mining executives are refocusing on expansion.

COMPANY: MACA

ASX CODE: MLD

SHARES ON OFFER: 60 million

LISTING PRICE: $1

LISTING DATE: November 3

MARKET CAPITALISATION: $150 million

With capital spending programs ramping up again, there is a growing list of tender opportunities awaiting companies that provide support services to the sector. In anticipation, corporate activity is heating up among listed mining service providers.

After being profiled in this column in March, remote area accommodation specialist MAC Services Group has fallen prey to a $650 million takeover bid by US-based Oil Services International. Corporate evolution is already filling its void via the looming float of contract miner MACA Ltd. Fast food metaphors aside, MACA is an acronym for Mining & Civil Australia, the name under which the company was founded in 2002.

The purpose of its Australian Securities Exchange listing is to facilitate a partial sell-down by MACA's original shareholders. However they'll retain a 60 per cent stake in the business, while just over half of the float's proceeds have been flagged for funding growth projects. As contract mining is very capital intensive, the company needs plenty of cash on hand to procure the equipment needed to fulfil new contracts. On that front, MACA has seen no shortage of opportunities. Since 2005, the company has increased revenues from $30m to $155m.

Recent profit growth has been robust. Last financial year net profit rose 42 per cent to $16.4m, while a similar feat is flagged for the year ahead.

These forecasts are underpinned by existing contracts, leaving cost management as the primary uncertainty facing new investors. A 5 per cent increase in labour costs would reduce net profit to the tune of 9 per cent, but overall the balance of risks appear positive. Gearing is at reasonable levels and the float has been favourably priced at just 6.5 times forecast net profit. With forward price-to-earnings ratios among MACA's peer group averaging in the double digits, further strengthening in the order book would prove rewarding for the share price.