17-May-2020: I've noticed this afternoon that I have another straw here titled "Substantial Shareholders" plus one titled "Skin in the Game" which are both about the insider ownership within GNG. Here's an update based on their 2019 Annual Report and notices from substantial shareholders and directors since then:
Firstly, founders, management, executives and board members:
Next, there are an additional 3 institutional substantial shareholders:
That lot (both lists) adds up to more than 94% of the shares on issue - of a company whose entire market cap is only about $98 million today (at 64 cps). That leaves less than 6% (or about $5.8m worth) as a "free float", being shares that might be available to be bought or sold by ordinary retail shareholders. It's actually less than that however, because there are clearly other long-term holders, some of whom are also on their top 20 shareholders list, who are not selling. Liquidity CAN be an issue with GNG.
Disclosure: I hold GNG in two of my portfolios. I would hold them in my super, however GNG is too small to be in the S&P/ASX300 index, which is a prerequisite to direct shareholdings within my super, which is in an industry super fund (CBUS). They are currently trading below 70 cps, so look very cheap. They need to announce more new contracts to get the market interested in them again, and that will happen at some point.
30-June-2020: https://www.miningmonthly.com: More paste work for GRES
15-May-2020: Upstream PS - Northern Endeavour FPSO Contract
GR Engineering Services Limited (ASX: GNG) is pleased to announce that its wholly owned subsidiary, Upstream Production Solutions Pty Ltd (Upstream PS) has been awarded a Contract with the Department of Industry, Science, Energy and Resources of the Australian Government to provide operations and maintenance to the Northern Endeavour FPSO and associated infrastructure.
As previously announced on 17 February 2020, Upstream PS had been providing operations and maintenance services to the Northern Endeavour FPSO under a short term agreement and had been working to agree a longer form contract with the Department.
The initial term of the Contract expires on 31 October 2020, with an option to extend the Contract for a further term. Based on the current budget for core operations services and planned maintenance activities, it is anticipated that revenue from the Contract for the initial term will be approximately $32 million.
Commenting on the award of the Contract, GR Engineering’s Managing Director, Geoff Jones stated that:
“We are pleased to continue working with the Department and the relevant regulatory bodies to safely operate and maintain the Northern Endeavour FPSO whilst it remains in a non-producing state under the Northern Endeavour Temporary Operations Program.”
[Disclosure: I hold GNG shares.]
GR Engineering Services (GRES, ASX:GNG) have released two new announcements concerning their Upstream PS division this week:
Neither of these announcements are particularly material - they're certainly not game-changers for GNG, but it does highlight that they do have a division within the company (Upstream Production Solutions) that services the energy (oil/gas) industry and has significant recurring revenue, which is important when their main (minerals processing plant design and construction) business has such chunky/lumpy revenue that is not recurring. Their EPC contracts vary greatly in volume and value and their income from that main division tends to be all over the shop from one year to the next. The lack of consistency - in terms of revenue and earnings - from that main division scares many people away, but having followed them closely for years, I take comfort in their conservative management, who avoid debt like the plague, always maintain a healthy net cash position, and do a very reasonable job in terms of risk management and risk mitigation considering the industry they are exposed to - being junior miners, explorers moving into the development stage, and small project developers - who often have no cashflow yet and sometimes have funding issues. AND they have Upstream PS there as well, with their vital recurring revenue. GNG are down currently, and their SP can certainly whipsaw around quite violently at times, but they remain a core holding of mine. You need to have a high risk-tolerance - or else the ability to ignore daily SP movements - to hold them, but they ARE profitable, they have excellent management (who all have significant skin in the game) and they are very good at what they do - so have a great industry position also. There's plenty to like. Let's see what happens when they report during the next few days.
10-Feb-10: EPC Contract - Abra Base Metals Project
GR Engineering Services Ltd (GNG) is pleased to announce that it has been awarded a conditional engineering, procurement and construction (EPC) contract with Galena Mining Limited’s (G1A) subsidiary, Abra Mining Pty Ltd, for the supply of a 1.2 million tonne per annum lead sulphide floatation process plant and ancillary infrastructure for the Abra Base Metals Project located in Western Australia.
The Contract sum is $74m and will be undertaken on a guaranteed maximum price (GMP) basis. The Contract remains subject to GR Engineering being issued with a full notice to proceed, which is dependent on Abra Mining achieving financial close on its proposed project financing facilities.
GR Engineering has commenced early engineering works up to an agreed capped amount.
Commenting on the award of the Contract, Mr Geoff Jones, MD of GNG said:
“We are pleased to have been awarded the Contract for the delivery of the Abra Base Metals Project, which has followed GR Engineering’s involvement to date in the project’s feasibility study and preliminary design work. We look forward to working with the Galena team to safely and successfully deliver the Abra Base Metals Project.”
That's a significant contract. They also recently announced what appeared to be a much smaller (US$4.5m) contract in Mexico, but upon further inspection that order was just for preliminary works ahead of the official award of an EPCM contract which would be worth a lot more:
30-Jan-2020: San Dimas Silver Mine EPCM Project
That one was on the back of GNG's recent acquisition of Arizona-based Hanlon Engineering and Associates in the US. Hanlon is a multi-disciplinary engineering services firm that provides engineering, procurement and construction management (EPCM) services to the mining sector in North America. GNG's MD, Geoff Jones, said that the acquisition of Hanlon was aligned with GR Engineering’s growth strategy, and would increase the Company’s existing footprint within the Americas.
“We are pleased to be acquiring the Hanlon business. Hanlon has a strong local brand with an excellent safety record and longstanding relationships with major mining clients. Hanlon has an experienced management team capable of taking advantage of the numerous growth opportunities that exist in the Americas."
Based on Hanlon’s current workflow, identified growth prospects and GR Engineering’s existing pipeline of work in the Americas, GR Engineering anticipates that the business will immediately contribute to GR Engineering’s revenue and become EPS accretive for the Company in the financial year ending 30 June 2021. No material earnings impact is forecast for the current financial year (FY20).
16-Jan-2020: Acquisition of US Business
However, the BIG announcement, that moved the SP almost +20% on the day, was this one:
Why that put a rocket under GNG is a bit of a mystery considering (a) there was no corresponding announcement by GNG themselves - that announcement was from EGR, (b) the two companies have so far only signed a non-binding letter of intent (LOI), rather than any formal contract (conditional or otherwise), and (c) EGR haven't even fully secured the land yet that they want to build this thing on so it's highly unlikely they have yet secured the funding needed to build it.
However, when a stock has been beaten down as much as GNG had been, it doesn't take very much to reverse that trend and get them heading north again.
On the negative side, GNG did reveal that they would be booking a A$17.4m impairment in their H1FY20 accounts associated with the TOGA (Timor Sea Oil & Gas Australia Pty Ltd (Administrators Appointed)) Group of companies now being placed into liquidation. GNG's wholly owned subsidiary, Upstream Production Solutions Pty Ltd (Upstream PS) had an Operations and Maintenance Services Agreement (O&M Agreement) with TOGA, and that $17.4m impairment represents receivables for services rendered (payments owed by TOGA to GNG for services that Upstream PS had performed for TOGA). Upstream PS holds a security interest over the Laminaria Corallina production licences, which rank pari passu with CCI’s security interest over those licences. CCI is TOGA's senior lender. GNG may well be able to get some or all of that $17.4m that is owed to them by TOGA, but they (GNG) tend to be pretty conservative with their accounting, so they've booked the impairment at this stage for the full amount.
07-Feb-2020: Timor Sea Oil & Gas Australia - Update
Today however, I expect the market to be more focussed on their latest announcement - of their new $74m EPC contract with Galena for delivery of the Abra Base Metals Project in WA. GNG are always involved in a number of feasibility studies for various different companies and a number of those FS's do lead to EPC contracts, as this one has.
Disclosure: I hold GNG shares.
19-June-2020: Moelis Australia: Update on GNG (not rated)
Moelis: GNG recently announced several contract wins & renewals which, on our estimates, largely underpins FY21. Selected awards include:
Further, there is potential for upside to FY21, based on our estimates, if previously secured conditional contract awards receive formal notice to proceed during the period. Selected conditional awards where early works have commenced (up to an agreed capped amount) include:
Notwithstanding the above, we are mindful there remains the possibility of projects being delayed due to unforeseen COVID-19-related disruptions or delays in customers’ securing funding. We examine the potential impact to GNG under 3 scenarios: 1) growth projects delayed/Northern Endeavour contract not renewed; 2) commencement of 1 x growth contract in 2H21/Northern Endeavour renewed; and 3) 1 x growth contract in 1H21/Northern Endeavour renewed. Selected takeaways include:
--- click on the link above to access the full update from Moelis ---
Disclosure: I hold GNG shares, and have done since 2012.
15-June-2020: Contract Award - Lake Way Project
Lake Way Project – Design and Construction Works
GR Engineering Services Limited (GRES, ASX: GNG) is pleased to announce that it has been engaged by Salt Lake Potash Limited (SO4.ASX) (Salt Lake Potash) for the design and construction of the Lake Way Project.
The Lake Way Project is a 245kt per annum Sulphate of Potash (SOP) development project with an expected mine life of over 20 years. The project is located in the Goldfields region of Western Australia, approximately 15km south of Wiluna.
GR Engineering has been engaged by Salt Lake Potash to provide services for non-process engineering design and the management of procurement, construction and commissioning of the Lake Way Project processing facility and associated infrastructure. GR Engineering has separately been engaged to undertake the civil, structural, mechanical, electrical and piping construction works for those project areas.
It is anticipated that aggregate revenue from the delivery of services, procurement and construction works associated with the Lake Way Project from the commencement date to practical completion will be approximately $107 million. Based on Salt Lake Potash’s anticipated project timing, the majority of this revenue is likely to be realised in the financial year ending 30 June 2021.
GR Engineering’s scope contemplates a collaborative arrangement, where it will work with Salt Lake Potash’s project team and manage the delivery of third party process design and key equipment supply. The construction scope will be performed on a target cost estimate basis, incentivising GR Engineering to achieve favourable budget and schedule outcomes.
Commenting on the award, Mr Geoff Jones, Managing Director said: “We are extremely pleased to have been engaged to play a key role in the delivery of the process plant and non-process infrastructure for the Lake Way Project. We look forward to continuing to work collaboratively with Salt Lake Potash to deliver safe and successful outcomes. GR Engineering looks forward to Salt Lake Potash emerging as a significant new Australian SOP Producer.”
--- ends ---
From SO4: SO4: Process Plant Contracts Awarded
PROCESS PLANT CONTRACTS AWARDED
Salt Lake Potash Limited (ASX: SO4) is pleased to announce that it has awarded EPC and EPCM contracts to GR Engineering Services Ltd (GRES) for construction of the Process Plant and Non-Process Infrastructure (NPI) at its Lake Way Project. These contracts combined represent more than 40% of the total project capital requirement.
TONY SWIERICZUK, Chief Executive Officer of SO4 said, “We are very pleased to have executed these contracts with GRES who have been a critical contracting partner by our side throughout the design development of the Lake Way processing plant and off-lake infrastructure since early 2019. The finalisation of these major Project contracts and the substantial engineering and procurement activity to date has further de-risked the Lake Way Project execution and confidence around the capital budget.”
--- click on links for more ---
The SO4 announcement (2nd link) contains further details on their process plant design and capital budget.
Disclosure: I hold GNG shares.
21-Apr-19: This straw is about the founders of GRES (GR Engineering Services, ASX:GNG) and their current board and management, and their levels of share ownership in the company.
Firstly, a little light reading for those who are interested:
Joe Ricciardo also retired from the MinRes (ASX:MIN) board at the same time.
Note: Joe Totaro, one of the co-founders, has now retired from full-time employment (from the beginning of April 2019), including resigning from the CFO and Company Secretary positions at GRES, but he has now joined the GRES (GNG) board as a non-executive director. He still owns 5.21% of the company.
Other founder and management holdings:
They certainly do tick the "skin-in-the-game" box.
18-May-2020: That was written 13 months ago, and there have been some changes; I've uncovered another ex-director/executive holding (Ledgking Pty Ltd) and a secondary holding for the Botica family - Sisaro Pty Ltd. It appears that George Botica passed away in 2018, survived by his wife Edna and their children who still hold shares via Sistaro P/L and Joley P/L. Most of the changes have been minor changes to the percentages rather than to the number of shares held (which have mostly not changed). The percentage changes are due to the issue of a very small number of shares over the last year (which are most likely due to executive remuneration arrangements) which has resulted in very minor dillution to existing shareholders of around -0.01% (of the GNG shares on issue) in many cases.
I posted a straw yesterday with the latest updated list under "Substantial Shareholders" here in the GNG section, and I also included their 3 institutional substantial shareholders, CBA (inc. Colonial First State), Carol Australia Holdings (owned by Mitsubishi UFJ Financial Group) and Spheria Asset Management. Between them all that's just over 94% of GNG's shares held by substantial holders, management, company executives and board members. That doesn't leave much for the rest of us; GNG currently has a market cap of just under $100m (at 64 cps). Hence the low liquidity!
I do hold GNG.
02-Mar-2019: Moelis Australia have released an updated Broker/Analyst Report on GR Engineering Services (post GNG's 1HFY19 results) which is available free via the "ASX Equity Research Scheme", and that report can be viewed here.
For more details on the scheme or to sign up for a free email every Friday afternoon with links in it to that week's free reports - see here.
Moelis rate GNG as a "Hold" with a target price of $1.22, which is 8% above yesterday's $1.13 cent closing price.
Disclosure: I hold GNG shares.
25-Feb-2019: GNG released their 1HFY19 report this morning and they've reported significantly lower revenue and profit compared to the pcp - as expected - as they are cycling off FY18 during which they completed 2 large gold projects (DCN/Dacian Gold's Mt Morgans and GCY/Gascoyne Resources' Dalgaranga) and they've had no large projects commenced yet in FY19.
They have also now guided that the 2nd half is likely to be roughly the same as the first half - due to project development delays and uncertain commencement timing on some projects. When you look at the numbers (you can view their 3-page 1HFY19 Results Media Release here), FY19 is going to be a much weaker year than FY18. I have been warning that this would likely be the case, and that they needed to get cracking on both Thunderbird (for SFX/Sheffield Resources) and Karlawinda (for CMM/Capricorn Metals) in the first half to have any chance of having a reasonable 2nd half. They haven't commenced work at either project as yet, with Thunderbird being very close, but Karlawinda being delayed by a few different factors including some M&A activity around the project owners - Capricorn Metals (CMM).
On the bright side, they (GNG) look set to have a much better FY20.
Also, they've dropped their interim dividend from 6c to 4c FF. Their full-year dividend, paid in October was 5c. I think it's safe to assume they'll most likely drop their full year dividend this year, and most likely to 4c - the same as this interim dividend declared today. Based on 8c (4+4), and their current $1.17 SP, that puts them on a 6.8% FF forward-looking dividend yield - or 9.6% grossed up (to include the full value of the franking credits).
On that basis - even without the franking credits - they look like a good "hold" to me currently, and possibly a "buy" if their SP drops much further. There will be upside in terms of capital gains when their workload/WIH/order book improves again, and a decent income stream to keep us interested in the meantime. It's the nature of the industry - lumpy revenue and profits, but GNG usually pay a good dividend yield regardless. Happy to continue to hold GNG at these levels and with this div yield.
You can view their 24-page Half Yearly Report and Accounts here.
25 June 2019: Moelis Update: GNG: Project timing uncertainty remains
That broker update on GNG covers off the current state of the Thunderbird, Karlawinda and Sandy Ridge projects.
12-Nov-2018: GNG (GR Engineering Services or GRES) have announced today that they have signed an EPC contract with Sheffield Resources (SFX) for the construction of the Thunderbird Mineral Sands Project which is located between Broome and Derby in Western Australia - see here.
The corresponding announcement by Sheffield can be viewed here.
The GNG announcement mentions that they still can't start work on the project properly until SFX have secured all of their funding and made a FID (final investment decision) on Thunderbird, however reading the SFX announcement I would expect that the FID announcement would be imminent seeing as SFX are announcing that the project is now fully funded (via the Taurus facility).
GNG need to be working on Thunderbird and also Karlawinda (the gold project owned by CMM: Capricorn Metals) pretty soon to secure a decent second half for FY2019. Despite plenty of smaller contracts, GNG have had no really large contracts in the current half to replace the two big projects they completed in FY2018, being Dalgaranga for GCY (Gascoyne Resources) and Mt Morgans for DCN (Dacian Gold).
GNG are committed to providing the market with current year guidance ahead of their AGM - which is in 10 days time - on the 22nd November 2018.
If the market has already priced in a weaker half (this current half) compare to the PCP (being H1FY2018) then upbeat guidance (especially for a strong second half) might lift the share price. However there is also a strong possibility that GNG get sold down on the guidance that should be provided by GNG at some point in the next 10 days (between now and Nov 22). I would view a significant fall in GNG's share price from here as a buying opportunity. This current half will certainly be weak, but the next couple of years will be strong!
There are two brokers covering GNG. The latest report from Hartleys can be viewed here and it is titled, "FY19 Some Risk, FY20 Very Strong". They have a "Buy" on GNG with a valuation of $1.60 and a 12-month price target of $1.70. That report was prepared on August 23rd 2018.
Argonaut's latest report on GNG can be viewed here. They have reduced their valuation from $1.60 to $1.55, and also have GNG rated as a "Buy".
It's worth noting that both of those brokers are generally bullish on the sector, and they do issue a lot of "Buy" and "Spec Buy" recommendations.
Previous and future broker / analyst reports on GNG can be accessed from here.
Disclosure: I hold GNG shares.
Most of this was written in 2018, and parts have been updated since then:
GR Engineering Services (GRES, ASX: GNG) are the best in the industry at engineering, construction and commissioning of gold process plants, and they tackle many other minerals and metals as well.
They have highly incentivised and capable management who are shareholders - many are substantial shareholders. GNG are very profitable, and avoid debt like the plague, always maintaining a healthy cash buffer. They tend to target the smaller end of the market, so occasionally find themselves in disputes with companies who can't or won't pay their bills, like Eastern Goldfields (EGS) and Wolf Minerals (WLF). When they have cashflow issues, such companies tend to dispute invoices & threaten or commence counter-claims to stall having to pay their bills. Both disputes have now been fully settled.
Those who follow Monadelphous (MND) might remember they had a similar issue with WICET - the Wiggins Island Coal Export Terminal - a few years ago, as did every other contractor who worked on that project. There was a substantial negative movement in the coal price between when WICET was commenced and when the project was completed, and the construction contractors wore a lot of the pain as WICET stalled and argued and tried to get their costs reduced - after the contracts had all been signed and the work had already been done. MND found themselves in a long-running dispute with a company that was backed by some of Australia's largest coal miners - despite MND not doing a thing wrong. All settled now. This also occurs with much smaller companies like GNG.
To my knowledge, GNG have no material ongoing or current disputes now. The vast majority of their clients are very happy, and rave about GNG's work.
GNG have a lot of ongoing study work (feasibility studies and other engineering studies and process work) for various clients, and some smaller contracts, plus they have their Upstream Production Solutions (UPS) division which services the energy sector with mostly recurring revenue from ongoing maintenance and operations contracts. However, I'd like to see them announce a couple of new bigger contracts.
FY19 was a much quieter year than FY18, with lower revenue and NPAT (due to less work), and the share price of GNG reduced accordingly. The pick-up in FY20 really hasn't happened yet (as I write this on Monday 21st October 2019). However, with the SP down below $1/share, and the issues temporary rather than structural, I think GNG are looking quite interesting at these levels.
Disclosure: I hold GNG shares.