the humble donga and gbg

WA donga makers sweat on contracts

14th April 2009, 8:30 WST


The outcomes of tendering under way for some of the WA’s biggest resources projects will be crucial for local makers of the trusty “donga” as they cope with a wider downturn in mining demand and competition from overseas manufacturers.

Shares in the two major listed producers of portable accommodation in WA, Nomad Building and Fleetwood Corporation, were hammered last year as investors shied away from stocks exposed to the resources sector amid crashing commodities prices.

But shares in Fleetwood have climbed 73 per cent from a low of $3.14 in December and Nomad has more than doubled from a low of 15.5¢, as investors punt on the likely beneficiaries of contracts, including 3500 units to be built on Barrow Island if Chevron’s proposed Gorgon project gets the final investment nod later this year.

Some key projects in the mining sector are still expected to put in big orders for dongas, such as Gindalbie Metals’ Karara magnetite project, which will house 1500 to 2000 workers on site at peak employment.

Gindalbie has a preliminary tender for an $8 million camp initially to house 150 to 200 construction workers in Morawa, another 300-person camp in the next six months and a bigger camp on site once it has environmental approvals.

Citic Pacific’s $US4.2 billion ($6.1 billion) Sino magnetite project in the Pilbara is expected to reach a peak workforce of 4000 during 2010.

But in the case of the Sino project, accommodation units currently being installed by engineering contractor VDM Group, are being provided by joint venture partner China Metallurgical Group, which imported them from China.

Analysts said the revenues of local manufacturers would hang on by winning a share of key projects, with those who missed out facing a potential drop-off in revenue after 2008-09 because of the wider downturn in demand from the small and mid-cap mining and exploration companies.

Hartleys industrial analyst Nikki Ermongkonchai upgraded her rating on Nomad to “speculative buy” on the chance of the company winning the Gorgon accommodation village project.

“A win or loss on this contract could cause a large swing in the status of the order book and a significant impact on 2009-10 revenue visibility,” Ms Ermongkonchai wrote in a research note on Nomad.

She said if the Barrow Island village was a single contract, it could fill the winning bidder’s order book for a year.

Fleetwood, which was elevated into the S&P-ASX 200 index last month, saw revenues from its manufactured accommodation arm soar 82 per cent to $110.7 million for the first half of 2008-09, based on major contracts with Woodside Petroleum and Worsley Alumina.

The company also has the advantage of revenue from its Searipple Village in Karratha for which it has a take-or-pay agreement with Woodside until June 2010.

Nomad, on the other hand, has had a more difficult half year, with a 62 per cent jump in revenue failing to hit the bottom line after cost blowouts on some projects.

But Nomad has forecast a better second half and chief executive Alan Thomas said he had seen a pick-up in the March quarter.

“We are certainly doing a lot of tendering for a lot of oil and gas and other projects … there seems to be a lot of activity that wasn’t there in the final quarter of last year,” Mr Thomas said.

Fleetwood managing director Bob McKinnon said the industry was seeing tenders of a very “encouraging” size.

“It flies in the face a little bit of the views we are generally receiving,” Mr McKinnon said.

Fleetwood had seen a reduction in some smaller jobs available, but the demands of companies such as BHP Billiton, which was gearing up its Rapid Growth Project 5 (RGP5), and Chevron would benefit the bigger industry players.

“The magnitude and demands of the (Gorgon) contract will be such that not everybody can do it, it is a big contract and there will be delivery deadlines that will require a supplier with Fleetwood’s horsepower to do with any confidence,” Mr McKinnon said.

“We have as good a chance as any of the major suppliers, but who knows which way it is going to go … we don’t really count our chickens too early in these sorts of jobs.”

Emanuel Dillon, managing director of Complete Site Services, said the company had a higher level of inquiry since January than it had in 2008, and expected to have a positive 12 months to two years.

Mr Dillon said many mining companies used imports to make up shortfalls during boom times, but “responsible” companies sought locally made products first.