By Tess Ingram
Shares in Macmahon Holdings have soared 39 per cent after the struggling mining contractor offloaded its Mongolian operations for $US65 million ($85 million), extricating the company from a 10-month payment dispute with its client on the project.
The sale of the Singaporean subsidiary that houses its Mongolian business to an unnamed private company is expected to net Macmahon $US62 million.
Macmahon is set to emerge from a trading halt with news on a contract win and acquisition.Credit: Glenn Hunt
The news sent Macmahon's shares up 39 per cent to 6.4¢ at midday. The stock was the biggest gainer in the All Ordinaries index on Thursday morning, although it is trading well down on the 12-month high of 14¢ hit last August.
Macmahon chief financial officer Sybrandt Van Dyk said the company was pleased it had recovered some of the money it invested in Mongolia.
"The recoveries we get from the deal are higher than the asset carrying value we have the project at on our books, net of provisions," he said.
The payment dispute was ignited in August 2014 when Macmahon revealed Erdenes Tavan Tolgoi, the project's Mongolian coal miner, was $22 million behind on progress payments.
Sustained negotiations followed, with Macmahon at one stage considering international arbitration to resolve the dispute. Macmahon said the sale would result in its exit from the troublesome contract, with the buyer managing it going forward. The $US500 million, five-year contract was expected to expire in 2017.
"They take over the contractual obligations and obviously the risk as part of the deal," Mr Van Dyk said.
The dispute hasn't turned the company off operating in Mongolia in the future, with Mr Van Dyk saying Macmahon had considerable expertise in the region that could be applied to future projects.
"We still see Mongolia as a potential market place for us to do business. Rio has a big operation out there and we should be in a very good position to provide services to them if and when they kick off their underground operations."
Under the sales agreement, Macmahon has "provided certain warranties about the entities involved in the transaction and their assets and operations" but Mr Van Dyk said they were "the bare minimum of warranties one would provide in a transaction of this sort" and did not leave Macmahon tied to the contract.
"The buyer is fully aware with the position we were in up there and have done due diligence as such so they are really up to speed," he said.
The news comes after Macmahon on Monday revealed it would book a writedown of between $95 million and $125 million on its equipment and inventory values in its full-year report, in addition to a $130 million impairment recorded in its first-half results.
Macmahon has been hit by a slowdown in the mining services sector and the loss of major contracts, including a $1.8 billion contract to work on Fortescue's Christmas Creek project, worth $260 million a year.
The company is currently in extended talks with its banking syndicate about resizing its $317.5 million facility.
Mr Van Dyk said the deal meant the company was now in a net cash position, which might improve the outcome of its debt talks.
"With this inflow of money hopefully the talks do take a different tone," he said.
"We will see if we actually do need to continue with the syndicate … our options are to either continue with the syndicated facility or retire the syndicate and work on a working capital basis plus an asset financing methodology going forward."
The talks were expected to be wrapped up by June 30, but Mr Van Dyk said they might be extended.
Chairman Jim Walker said it had been "a tough run" for the company in recent months but it was bidding on $2.2 billion of tenders and had progressed to the final stage of some tenders.