02-Sep-2024: GR Engineering Services (GNG) has gone ex-dividend today for a 10 cps fully franked dividend, so I expected their share price to fall, probably by more than the dividend, as people who are worried about their order book not being at record levels after BHP shelved West Musgrave sell out after securing that fat dividend, however they've been sold down as much as 16.5 cps today and are sitting around that level at -8.42% or 16 cents per share lower right now (at around midday Sydney time).

I would be buying more GNG IRL, but I already own a heap - they are my third largest real-money position. I might look to free up some cash here and top up my GNG position on SM this evening - depending on what else life throws at me today - there are a few things I need to do away from the office this afternoon.

Today, another very similar company to LYL reported, GR Engineering Services (GNG), and despite having had BHP shelve the West Musgrave project (see here: Market-Update---West-Musgrave-Project.PDF) in July, GNG maintained their very high final dividend at 10 cents per share (cps) which means their full year dividends for FY24 (interim + final divs) adds up to 19 cps, same as FY23, and that means that at yesterday's closing share price of $1.855, GNG are paying a dividend yield of 10.2% and that's fully franked, so if you add in the full value of those franking credits (which I can use), the "grossed up" dividend yield is 14.3%. Again, this is another company (like LYL) who specialise in gold mills (so, tailwinds), have zero net debt, have high insider ownership (17% of the company owned by Directors and company founders and their families) and are conservatively run, but run well. They aren't growing as fast as LYL are though - they are smaller and have lumpier revenue and earnings.

GNG reported  $74.6 million net cash, -13.3% lower than the $86 million they had at 30 June 2023, and their ROE is also very high at 47% (based on today's results), and it's been over 45% for the previous 3 financial years also according to Commsec, but the main difference in the eyes of the market appears to be that the market had lower expectations of GNG and GNG did maintain their very high dividend, so GNG is up today, currently trading just over $1.90 and they've traded this morning up to $1.95. I was buying GNG two days ago at $1.81 (average), so that's one thing I did get right this week (selling down Codan yesterday here on SM, not so much...)...

Like LYL, GNG is a highly illiquid stock where large volume trades can significantly move the share price, but unlike LYL who had a detailed and positive outlook statement yesterday, GNG's outlook statement was more, "We'll let you know in a couple of months.":

"FY25 Update and Outlook: GR Engineering has a solid contracted pipeline and has been building its orderbook for FY25 and future periods. GR Engineering intends to provide FY25 guidance at its 2024 Annual General Meeting, to be held on 27 November 2024, when it is likely to have more certainty in relation to the timing of key projects."

'Nuff said. Oh, except their EPS, earnings and margins were all higher, on lower revenue:

Source: GNG-FY24-Financial-Results---Media-Release.PDF

I hold GNG (third largest real life position, plus here also).

30-May-2024: FY24-Guidance-Update.PDF

I saw this sell-down as an opportunity and topped up GNG today both in my largest real money portfolio (@ $2.09) and also here on Strawman.com (at the $2.10/share closing price).

This is an engineering and construction company predominantly, although they do have recurring revenue through their Energy division (was called Upstream Process Solutions / Upstream PS, now called GR Production Services), so I view this downgrade in much the same way that I viewed the recent Duratec (DUR) guidance update.

Here's what GNG reported at the half (for the 6 months ending 31-Dec-2023):

And here's what they reported for FY23 and FY22 (full year results):

FY24 (full year) EBITDA now expected to be $50 to $51m ($50.5m midpoint), so lower than FY22, but +13.7% higher than the $44.4m EBITDA they reported in FY23, so they'll earn more than they did last year.

The market is reacting negatively to the revenue guidance downgrade - previously a midpoint of $515m, now $422.5m (midpoint), which is huge - if you take the lower end of the new guidance, which is $415m of revenue, that's $100m less now, or -19.4%. Using the midpoints ($515m to $422.5m), it's an -18% reduction in revenue.

And it would be significantly lower than FY22, when the reported $651.7m in revenue.

However, as I said with Duratec, that's revenue, let's look at earnings: The second paragraph of the announcement states that GNG continues to achieve solid operational performance across its core business (GRES - GR Engineering Services, a.k.a. their "Minerals Processing" division) and from its two key subsidiaries, GR Production Services (a.k.a. their "Energy" division) and Mipac (which now includes their recent Paradigm Engineers acquisition), and that all divisions are forecast to achieve EBITDA growth - by margin and percentage - in FY24 compared to the prior year.

So their EBITDA margins are improving. That is borne out by their new guidance of $50.5m EBITDA from 422.5m in revenue - giving them an 11.95% EBITDA margin, compared with FY23 where their EBITDA margin was 8% ($44.4m EBITDA from $551.4m in revenue) and their EBITDA margin of 8.6% in FY22 ($55.8m EBITDA from $651.7m in revenue) - as shown above.

Their Net Assets moves around that $60m mark, give or take about $2m, and their cash balance is very up and down because it depends on a lot of factors and the timing of various milestone and completion payments for both ongoing work and completed work, as well as outgoing expenditure when gearing up for new projects at various times. Importantly, GNG rarely carry debt - they almost always maintain a net cash position, which is very wise for a company of their small size and the industries that they operate in, in addition to the types of clients they work for, often it's GNG who get the contracts to construct the initial mills for gold miners who are transitioning from explorers to developers to producers.

As with Lycopodium (LYL), GNG get a lot of initial study work, so the Pre-Feasibility Studies (PFSs) which often lead to Bankable/Definitive Feasibility Studies (BFSs/DFSs). Both companies are involved in the scoping, initial testwork in most cases, the engineering and design of the plant in consultation with the client, and then if they are awarded the EPC (engineering, procurement & construction) contract or the EPCM contract (which includes overall project Management), they are then responsible for the final designs, the tendering and ordering of long-lead-time items (such as ball mills and large drive motors), and the actual plant/mill construction. Because LYL often design gold mills to be built in some of the most dangerous places in the world, such as some of the more risky West African countries, you'll often see them (LYL) announce EPM or EP & PM contracts, which is where they do everything EXCEPT the actual in-country construction; that work is usually subcontracted to a locally owned builder already operating in-country, so those contracts are either called Engineering, Procurement and Management (EPM) contracts or more recently the trend has been to call them Engineering, Procurement, and Project Management. GNG, on the other hand, work mostly within Australia, and they almost always do the "C" (construction) themselves.

Some of these contracts take months, such a mill refurbishment or an expansion or upgrade of an existing mill, however some will take years, such as the West Musgrave Mineral Processing Plant (nickel and copper) for OZ Minerals (now owned by BHP) - see here: GNG-Contract-Award---West-Musgrave-Project.PDF [14/04/2023] - which is worth over $300m (in revenue) and was expected to last around 2 years (so until around April/May 2025).

I did mention here a few months back that with the Nickel price tanking and BHP threatening to lay off hundreds of workers across their nickel operations in WA if they did not receive significant government support to carry them through until nickel prices bounced back, that the West Musgrave project could either be shelved or suspended, and that could definitely affect GNG because it was GNG's largest project at the time - here is an overview of their current Minerals Processing (GRES) contracted projects (as reported in Feb with their H1 results):

Source: HY24-Investor-Presentation.PDF [22-Feb-2024]

And here is the recurring revenue from their Energy (GRPS, formerly Upstream PS) division, along with the various contract lengths, which vary from 2 to 5 years, and are often rolled over (extended) at the end of those periods.

As you can see from those two slides, they are a small company that relies on a relatively small number of contracts to keep them busy at any given time, so their revenue can be lumpy for sure. Last night, GNG was a $364m company (bit smaller after today's SP drop), LYL was a $480m company, and Duratec's market cap was around $255m, so these are microcaps and none of them are in the ASX300 yet.

Since those slides were prepared in Feb, GNG have announced the following:

05-April-2024: Market-Update---Abra-Paste-Plant.PDF [Galena Mining Limited (G1A) reported that voluntary administrators had been appointed to Galena’s 60% owned subsidiary, Abra Mining Pty Ltd. GR Engineering was engaged in September 2021 to undertake the engineering, procurement and construction to relocate, refurbish and commission the Abra Mining owned Higginsville paste plant, which was successfully delivered and commissioned in accordance with the Contract, which included deferred payment terms. Prior to the appointment of the Administrators, Abra Mining has made monthly payments to GR Engineering in accordance with the applicable payment schedule in the Contract. GR Engineering notes the intention of the Administrators to operate the Abra mine and processing plant on a business as usual basis. The Administrators have confirmed that they will continue to pay the contracted monthly payments to GR Engineering. GR Engineering’s current exposure for remaining payments to be made by Abra Mining under the Contract is $8.5m representing unpaid deferred receivables. Given the deferred nature of the progress claims under the Contract, at the time of entering the Contract, GR Engineering sought and obtained first ranking security over the paste plant equipment and design documentation. This security relates to the paste plant only and does not extend to any other assets of Abra Mining. Based on GR Engineering's secured position, its preliminary assessment of the value of the secured assets, the intention of the Administrators to operate the mine and processing plant on a business as usual basis and the Administrators’ intention to continue to pay the contracted monthly payments to GR Engineering, GR Engineering expects that any adverse impact on GR Engineering's financial results for the financial year ending 30 June 2024 will be immaterial.]

18-April-2024: Appointment-of-Non-Executive-Director---Debbie-Morrow.PDF [Deb Morrow has over 25 years’ experience leading large-scale projects and has had a range of senior corporate and sustainability roles across the energy and mining sectors which includes a 20 year career with Woodside Energy Ltd and being a senior executive at OZ Minerals Ltd, prior to its acquisition by BHP in 2023. Ms Morrow is currently the MD & CEO of ASX listed Agrimin Ltd, who are focused on the development of its 100% owned potash projects in WA. Ms Morrow is a NED of Miner’s Promise and Holyoak.]

10-May-2024: GNG-EPC-Contract---Kathleen-Valley-Lithium-Backfill-Project.PDF

plus: LTR-Liontown-executes-Paste-Plant-EPC-contract.PDF

So not just gold. Lithium, copper, nickel, plus their energy division. Happy to be a shareholder of GNG, and thought today's drop was a good buying opportunity.

GNG-1H24-Results.pdf (taylorcollison.com.au) [04-March-2024]

Plain Text: https://www.taylorcollison.com.au/wp-content/uploads/2024/03/GNG-1H24-Results.pdf

Below are screenshots of pages 1 and 2 - please click on the link above for the full report which contains disclaimers and disclosures on pages 3 and 4.

Disclosure: I hold GNG shares both here on Strawman.com and in a real money portfolio as well.

20-Feb-2024: GR Engineering Services (GRES, GNG.asx) have exposure to BHP's West Musgrave Nickel/Copper project and that may get mothballed or have a subtantial part of the intended expenditure deferred soon according to a recent AFR article (link here) (15 Feb 2024) which says: "Construction of the new $1.7 billion West Musgrave nickel mine is only 21 per cent complete, but BHP said it was considering slowing work, which could mean deferral of more than $1 billion of remaining spend on the project."

GRES wins contract to build the West Musgrave Mineral Processing Plant (felix.net) [22-Apr-2023]

https://www.mipac.com.au/insights/mipac-to-provide-main-automation-contracting-for-bhps-west-musgrave-project/

BHP acquired OZ Minerals, so West Musgrave is 100% owned by BHP who have all of their nickel assets under review.

Mipac were acquired by GRES (GNG) in 2021: GR Engineering Acquires Leading Process Controls Business (gres.com.au) [27-Apr-2021]

I believe West Musgrave is currently GNG's largest single EPC/EPCM contract in their order book, so this could certainly affect them if BHP go down that path as part of their nickel asset review.

Disclosure: I hold GNG and LYL, but not BHP.

01-Feb-2024: GNG-Acquisition-of-WA-Based-Process-Controls-Business-(Paradigm-Engineers).PDF

GR Engineering Services Limited (ASX:GNG) announced this morning that its wholly owned subsidiary, Mipac Holdings Pty Ltd (Mipac) has entered into an agreement to acquire Paradigm Engineers Pty Ltd (Paradigm), a provider of control systems and electrical engineering, automation and technology services based in Western Australia.

Transaction Highlights

• This transaction enhances Mipac’s control system and electrical design capabilities and expands its existing footprint in Western Australia. Paradigm has significant expertise working across a range of commodities, including iron ore, gold and battery minerals.
• Paradigm is forecasting FY24 revenue of $16 million and an EBITDA margin % consistent with Mipac. Similar revenue is anticipated for FY25, supported by Paradigm’s current order book and pipeline. The combined Mipac and Paradigm business is expected to generate revenue of approximately $50 million on a proforma basis.
• Paradigm’s current management team have agreed to continue in their roles post-completion.
• The purchase price is $9 million, with 50% payable in cash and 50% payable in GR Engineering scrip, subject to voluntary escrow. It is anticipated that the transaction will be immediately earnings per share (EPS) accretive.

This is a small bolt-on acquisition that does NOT require a CR, and is immediately EPS accretive. All good! GNG don't do M&A very often, but when they do make an acquisition, it tends to be a good strategic fit, for a good price.

Paradigm Engineers | Control systems and electrical engineering company

GR Engineering - Global Mineral Processing Solutions (gres.com.au)

GR Engineering Services Limited - Mipac - Engineering Consultants and Contractors (gres.com.au)

Disc: I hold GNG shares (both here and in a real money portfolio).

03-October-2023: Taylor Collison: GNG: Initiation – Super Cycle, Super Profits

Analyst: Sam Pittman.

Excerpt:

Our View

Clean energy mineral demand is underwritten by long-dated secular changes, that in many cases is non-discretionary due to regulatory changes and the desire to move to a lower carbon energy future.

Given the expected duration of this cycle, and its potential to provide consistent profits / high labour utilisation, we believe the payback on a GNG investment will prove to be attractive.

GNG is run by an experienced management team with a long-term track record for managing risk through the cycle. Whilst GNG is susceptible to lumpy single year profits and infrequent losses due to the commodity prices, its long-term ability to grow revenues at attractive returns on equity makes it an attractive way to invest in the transition to a lower carbon economy.

The lumpiness is reflected in a multiple for contractors which is a discount of ~20% - 30% to the index. GNG currently trades at 10.8x FY24e PE, but we think this represents an opportunity. The current demand for clean energy is likely to be prolonged and somewhat independent of the business cycle which usually influences commodity prices.

We initiate with an Outperform and a price target of $2.52 based on an NPV of the next five years estimated dividends and a terminal valuation based on an across the cycle PE ratio. 

--- end of excerpt ---

Click on the link at the top for the full report by Taylor Collison.

Source: ASX email service

I hold GNG shares.

27-August-2023: I'd like to highlight the income and growth track record and future potential of a couple of smaller lower-liquidity microcaps that don't get talked about here much:

Firstly, GR Engineering Services (GRES, GNG.asx):

GR Engineering - Global Mineral Processing Solutions (gres.com.au)

Projects (gres.com.au)

GR Engineering: Providing Global Mineral Processing Solutions - YouTube [video]

GNG-FY23-Financial-Results-23-August-2023.pdf

GNG-FY23-Results-Presentation-23-August-2023.pdf

That presso (from last Wednesday) isn't overly long, however I'll shorten it even more by providing the 10 most important slides for current and prospective shareholders:

FY22 was a great year, and FY23 didn't quite hit those same highs, however FY23 was still a solid year and with negligible debt plus $86m cash in the bank (at June 30th), GRES (GNG) have matched FY22's high 19 cps dividend (for the full twelve months, so adding the interim and final dividends together). In terms of FY24, I'm more than comfortable that the good times are going to keep rolling on with GNG, based on their order book and track record (more on that order book in a minute).

Now, this company has three divisions, as shown above with some examples of their respective current clients. Those 3 divisions are:

1. Mineral Processing ("GR Engineering", their main business which provides the majority of revenue and earnings, but the revenue is lumpy due to the one-off nature of the contracts);
2. Energy ("Upstream PS", or "Upstream Production Solutions", provides recurring revenue from multi-year maintenance/operations contracts in the Oil/Gas sector); and
3. Process Control Systems (Mipac, their most recent division, formed via the acquisition of Mipac in 2021 for just $21.4m max - being only $14.5m upfront - in cash and GNG shares - plus the other $6.9m being deferred subject to meeting EBITDA targets - which shows both how frugal and how smart GNG management are).

That "Mineral Processing" Order Book (confirmed orders) that totals over $650 million is enough by itself to beat both FY22's and FY23's revenue in FY24 (the current financial year), without ANY contribution from their other two divisions, or any further work added to the order book, including those near-term opportunities they mentioned, however it's likely that some of that (order book) work will extend into FY25, especially West Musgrave (for BHP), so part of that revenue will fall into FY25. Regardless, FY24 is going to be another strong year, and I believe they will continue to pay above-market dividends, both because they have the balance sheet (no debt and over $80m in cash) to do so, and also because they have perfect shareholder alignment. Check this out:

Yes, that's right folks, 56% of the company is owned by the company's directors and the company's founders (or their families as some of the founders have sadly pased away) and it's been like that for years, so there hasn't been much selling down of these insider positions at all. I find that when the majority of a company is owned by insiders, they tend to be rather focussed on total shareholder returns, particularly on paying out decent dividends when they can.

And they use debt much more wisely than other companies where management are just managers rather than part-owners of the business. With small companies, I prefer them to have no debt at all, and GNG Management agree, because they have what they refer to as "negligible debt" and over $80m of cash in the bank.

The free float (all shares on issue less those owned by insiders and instos) is notionally 27%, however most of that retail shareholder base isn't selling either, so it could become a lobster pot stock; easy to get into, much harder to get out of in a mad rush. So great for patient money, but perhaps not as good for money you might need to pull out quickly.

That's the last image that I've copied across from that Investor Presentation from last week (link above, near the top of this straw). This is a company with a market cap of around $372m (based on a $2.30 share price, where they closed at on Friday), with $86m cash (at June 30th), that's paying out some really nice dividends, and doing it consistently.

See below:

Source: Commsec

OK, nice dividends, all fully franked since March 2021, and a trailing yield of 8.3% plus the value of franking credits, so a grossed up trailing yield of 11.8% (including the full value of the franking credits) based on a share price of $2.30 (where they closed on Friday). I paid a fair bit less than $2.30/share for most of mine, but I think they still represent value at current levels.

But what about growth? Well...

Source: Commsec.

If you want to compare that to the index - here it is - and I've thrown in another similar company that is probably even better - Lycopodium (LYL):

Source: Commsec.

I've used the XAO there for a benchmark, the All Ords accumulation index, which includes all dividends and distributions reinvested back into the underlying companies, whereas the LYL and GNG lines ONLY represent the share price, without any dividends. You could also use the XJO - the S&P/ASX 200 TR (total return) index, however that is almost identical to the All Ords (the XAO) with the XJO returning +38.56% over 10 years (total, not p.a.) vs. the +43.07% return of the XAO. LYL has returned triple that, with +128.89% and GNG has returned +286.55% over 10 years, and that's of course without factoring in any dividends with GNG or LYL. Dividends substantially increase the total shareholder return - way beyond what that chart could show, except for the green line - the XAO - the All Ords Accumulation (or Total Return) Index - because with the XAO the dividends are already factored in.

So there you have it - great INCOME PLUS GROWTH. And LYL is even better, but that's another straw.

Disclosure: I hold GNG & LYL both here on SM and in my real life portfolios.

P.S. While they DO specialise in the design and construction of gold processing plants (gold mills), they also do other stuff, like Mineral Sands for instance:

Thunderbird Mineral Sands Project (gres.com.au)

03-May-2023: This announcement from GNG (who I hold both here and IRL) caught my eye this evening: Binding-Term-Sheet---Yangibana-Rare-Earths-Project.PDF

That's another contract win to add to their order book. Details: GR Engineering (GNG) have entered into a binding term sheet with Yangibana Pty Ltd, a wholly owned subsidiary of Hastings Technology Metals Limited (ASX: HAS) (Hastings), for the engineering, procurement and construction (EPC) of the beneficiation plant and associated infrastructure for the Yangibana Rare Earths Project (the Project) in Western Australia.

The Project is located approximately 250km north east of Carnarvon, in Western Australia.

GR Engineering and Hastings have agreed the material terms of the EPC contract in the binding term sheet. The EPC contract for the works will be finalised shortly and GR Engineering will commence early works. If the EPC contract is entered into, it is expected that the contract sum, including provisional sum, will be $210 million.

Commenting on the award, Mr Tony Patrizi, Managing Director said: “GR Engineering is pleased to have received the binding term sheet for this world class rare earths project in the Gascoyne region of Western Australia. It will be exciting to work on this project as it is focused on globally critical minerals that are used as key components for electric vehicles and wind turbines. We look forward to engaging closely with the Hastings team to deliver safe and successful outcomes for this project."

--- ends ---

Here's a link to the Hastings Technology Metals (HAS) announcement today: HAS-Reduces-Yangibana-Delivery-Risk---Awards-EPC-Contract.PDF

In their H1 results Presentation in February (see here: HY23-Investor-Presentation.PDF) GNG gave us an overview of the major projects in their EPC (Engineer, Procure & Construct) Order Book (on slide 5):

By the way, that West Musgrave Project ccontract (with OZ Minerals) has now been finalised - see here: GNG-Contract-Award---West-Musgrave-Project.PDF [14-April-2023 - Estimated revenue: $312 million over a two year period - I did mention here a little while ago that I thought that West Musgrave would be a Big contract for GNG when it was finalised.]

GNG are a bit like Lycopodium (LYL) in a number of ways - not just in what they do, but also in how they go about things, and they are both very modest - tending to underpromise and overdeliver most of the time. While LYL have been positively re-rated by the market in recent months, GNG have not: Here are GNG's 1 and 3 year charts:

Over 3 years they've done alright, but over the past 7 or 8 months... not so much... in share price terms. However there can often be a disconnect between the business value and the business share price with these microcap companies that aren't followed by the majority of market participants. As we have seen with LYL in recent months, when the market decides to positively re-rate them, they can put on quite a bit in a very short space of time...

I hold both companies (GNG & LYL) both here and in real life. Here is GNG's "Outlook" slide from their Feb Presso (H1 FY23 Results presentation, link above):

See what I mean - very understated. For context, here's their FY22 vs FY21 results:

With current guidance for FY23 Revenue in the $500m to $530m range, that's better than FY21 ($392.4m), but not as good as FY22 ($651.7m), however that "return to historical levels" for their EBITDA margin in the second half (current half) of FY23 suggests that the EBITDA margin will be more like FY21's 9.5% than FY22's 8.6%, and their margins have been higher than that in prior years.

They're tracking along nicely. Great dividend yield too. And their share price will recover at some point, sooner or later. Good income stock, with capital growth when it comes, just like LYL.

21-Nov-2022: I've just been looking through some recent announcements from GR Engineering Services (GNG) which is one of my favourite companies, and one that continues to pay me market leading dividends. Their trailing dividend yield is 8.68% based on their closing share price today of $2.19 and the 19c worth of dividends they've paid during the past 12 months, higher if you gross it up to include franking - their dividends are also fully franked). So income and some capital gains as well.

Here's some of their recent announcements, starting with their presentation on August 24th:

24-Aug-2022: FY22-Investor-Presentation.PDF

23-Sep-2022: West-Musgrave-Project---FID-Achieved.PDF

Also: OZL: Green-Light-for-West-Musgrave-Project.PDF

07-Oct-2022: GNGThunderbird-Mineral-Sands-Project-Full-Notice-to-Proceed.PDF

26-Oct-2022: Managing-Director-Transition.PDF

31-Oct-2022: Cosmos-Nickel-Concentrator-Facility-Upgrade---Scope-Change.PDF

21-Nov-2022: GNG-Preferred-Tenderer---Sorby-Hills-Lead-Silver-Project.PDF

Also: BML: BML-GRES-Selected-for-Sorby-Hills-Process-Plant.PDF

Yeah, they're keeping busy!

GNG are involved in dozens of studies for various projects. The specialise in gold mills, but as well as precious metals, they also design and build processing plants for base metals and battery metals, just like Lycopodium (LYL) do. While both LYL and GNG are based here in Australia, and are both listed on the ASX, LYL do most of their work overseas, and they specialise in West Africa, where many others fear to tread, whereas GNG do most of their work here in Australia. I imagine the two companies might merge one day. I hold shares in both, and they have very complimentary businesses, but I guess the other factor is that they both also have very high insider ownership, so perhaps they will always be separate because neither management team wants to give up control. No matter. They both keep performing admirably.

For those who are interested, you can check out Lycopodium's recent announcements here: ASX Announcements | Lycopodium and their presentations here: Presentations | Lycopodium

The studies (PFS, BFS, DFS, etc) often/usually lead to them being the front-runners for the relevant EPC (or in LYL's case, EPCM, or EPM - or EP & PM) contracts for those projects if and when those projects get the green light (positive FID) from the owners (and those owners get their finance sorted out). GNG and LYL don't usually announce the studies (Pre-feasibility, Bankable Feasibility and Definitive Feasibility Studies) when they are awarded them - because they're not usually material, but when those studies lead to the award of Engineering, Procurement and Construction (EPC) contracts or EPC + Management (EPCM) contracts, or Engineering and Procurement plus Project Management (EP + PM) contracts, they do announce them, because they are material. Both companies are quite busy this year, and have been regularly announcing additional contract awards.

In addition to that work, which can be quite lumpy, due to it's one-off nature, GNG also have recurring revenue from their Upstream PS division - which stands for Upstream Production Solutions. It's one of the only acquisitions they've ever made; they prefer organic growth. Upstream PS is the quiet achiever within GNG that keeps churning out profits from recurring revenue from multi-year contracts from some of the largest names in the Australian oil and gas industry - as well as from some of the smaller players.

Here's their main website: Upstream Production Solutions (upstreamps.com)

And here's the section within the main GNG website that discusses Upstream PS: https://www.gres.com.au/our-companies/upstream-production-solutions.aspx

So, yeah, for a company that not many people have heard of, and that even fewer people follow, they are keeping busy, and rewarding their shareholders.

Disclosure: I hold shares in GNG and LYL both here on SM and in real life.

23-Sep-2022: GNG: West-Musgrave-Project---FID-Achieved.PDF

OZL: Green-Light-for-West-Musgrave-Project.PDF

The following is Page 3 of OZ Minerals' (OZL's) announcement (full announcement link above):

I reckon this is a big one - for GNG, in terms of the sort of contracts they have been winning over recent years. The work that GNG did for IGO at their Nova Nickel project back in 2015 was worth $114m plus another $12m for the non-process infrastructure ($126m all up):

Nova Nickel Project (gres.com.au)

GR Engineering wins more work at Nova (businessnews.com.au) (2015)

And that was a smaller project I reckon, and it was nine years ago. GNG (GR Engineering) also have a history of doing a lot of builds and upgrades of nickel concentrators for Western Areas at Forrestania and then Cosmos that dates back to 2008/2009, so while gold processing plants is GNG's game, they are also pretty good at designing and building nickel plants. Western Areas (WSA) was taken over by IGO earlier this year - see here: IGO gets Forrest backing in Western Areas takeover (australianresourcesandinvestment.com.au)

GNG closed down 3c today (or -1.32%) at $2.25, which was also their day-high, so they closed on their highs, having traded as low as $2.16 earlier in the day (which was -5.26% down from Thursday's $2.28/share close).

The market may have been disappointed that there were no estimates of revenue (no $ value) in today's announcement by GNG, however they have yet to finalise the contract details. It is important that OZ Minerals (OZL) did say in their announcement today that GNG (GR Engineering Services) would be building their (OZ Minerals') nickel processing plant at West Musgrave, despite not all of the details (such as the price) being finalised yet.

Interesting that rival engineering firm Lycopodium (LYL) who also specialise in gold processing plants, but do their best work overseas, mostly in Africa these days, rose +12c (or +1.77%) to close at $6.90/share today, on the back of this announcement: LYL-Award-of-Sabodala-Massawa-Project.PDF which is interesting in that it is a EP and PM contract (Engineering & Procurement plus Project Management) but there's no Construction aspect to it, so another company is doing the actual construction of the Sabodala-Massawa Expansion Project in Senegal for Endeavour Gold Corporation (a.k.a. Endeavour Mining, who are listed on the London Stock Exchange with a secondary listing in Canada on the TSX). As I mentioned in my Gold Forum post earlier tonight, Senegal shares a border with Mali and there's plenty going on in Mali that would tend to encourage most sensible people to stay well clear of the area, so it's possible that this is a risk management or risk mitigation strategy by LYL - i.e. to do the majority of the work from here in Australia and let another company do the in-country construction in Senegal. Of course that means that this contract is worth a fair bit less than previous EPC and EPCM contracts that LYL have been previously awarded in West Africa. This contract is "valued at over A$26 million, with first gold pour from the BIOX® plant expected in early 2024."

They would normally get 5 to 10 times that for an EPC or EPCM contract for the delivery of a gold processing plant in West Africa, but when you remove the "C", the price is a lot lower, but then, in this case, I imagine the risks (for LYL) are also a lot lower. Interesting times...

And interesting that the contract that the market learned today that GNG had secured in WA (sure, West Musgrave is in the middle of the desert, just to the west of the bottom left corner of NT and the top left corner of SA, so at the convergence of the three states, but importantly still right here in Australia) is worth at least 10 times what this new LYL contract is worth, in my opinion, and yet GNG were sold down, and LYL were bid up. Doesn't matter, I hold both of them.

Here's an excerpt from the OZL announcement today:

"Our project execution strategy will enable us to mitigate industry-wide cost inflation being experienced globally. An increase in direct Project capital to approximately $1.7 billion* is offset by a substantial increase in Project value and results in stronger cash flow generation of circa $1.9 billion [nominal value from commencement of production] during the first five years of production."

* Nominal value. Assumes a third-party power purchase agreement, a mining fleet lease agreement, and a lease of the Living Hub.

Now that $1.7 billion in direct project capital committed by OZL isn't all going to go to GNG of course, GNG will only get a slice of that pie, but it should be a generous enough slice considering they are going to engineer, procure, construct and deliver the processing plant, which tends to be one of the most expensive elements of new mines. It will be in terms of hundreds of millions in my estimation, not tens of millions. But time will tell.

Suffice to say I'm glad that GNG is one of the largest positions in one of my real life portfolios, and if GNG or LYL were in the ASX300 index, they would both also be in my SMSF (which is in an industry super fund, so I am limited to ASX300 companies unforunately). GNG is in the All Ords, LYL isn't even in that index, too small, and too many shares held by management, so insufficient free float for index inclusion. GNG also have a lot of insider ownership, heaps! But they have a larger market cap than LYL. Both great companies with superb management, and both paying very decent dividend yields this year. They've been showing me the money - by putting it in my bank account.

20-July-2022: GNG-EPC-Contract---Bellevue-Gold-Project.PDF

From BGL: BGL-Bellevue-awards-EPC-Contract-to-GR-Engineering.PDF

That's today. Back on May 24th, both companies announced that GNG were undertaking preliminary works, so had won the contract, but that it had not been officially awarded and signed off.

GNG-Preliminary-Works-Agreement---Bellevue-Gold-Project.PDF

BGL-Preliminary-works-agreement-signed-with-GR-Engineering.PDF

In that announcement, Bellevue said, " GR Engineering knew the project well from its work during the study phase".

That's important to understand, GNG is the main player in doing studies (PFS, BFS and DFS studies) for Australian gold companies, and much of that work does lead to GNG being awarded the EPC (engineer, procure, construct) contracts when those projects do get a positive FID (financial investment decision, i.e. the green light to proceed by the board of the company that owns the project) and funding is secured.

In terms of GNG taking part payment for their services in shares @PortfolioPlus - they have a positive track record of doing this, as does another mining services contractor (who mostly do the actual mining) in the gold sector, MACA (MLD). Both of them have regularly bought shares in their clients, or accepted shares as part-payment for their services, and have for the most part made additional profits by later selling those shares at a higher value that what they were issued at. Not always, but usually. The shares are not generally subject to any escrow agreements, so GNG and MLD are free to sell them any time they wish to.

In GNG's case, they usually only accept a smallish proportion of their total revenue as shares. In this case it's up to $7.5m of the $87.8m fixed price contract value, so around 8.5%. While there are obviously risks associated with taking part-payment in shares, GNG are in a very good position to know exactly what those risks are, especially as they have prepared the DFS (definitive feasibility study) for the project, and they are engineering and building the processing plant themselves.

It also creates further alignment of interest between the two companies, which is positive in my view as they are essentially partnering to bring this project into production. In this particular case, I'm very comfortable with it because the Bellevue Gold Project has such strong metrics (high gold grades, low production costs), so it's a good way for GNG to make even more money out of the contract.

GNG always have a handy net cash buffer with zero net debt so they can afford to hold small positions in other companies like this.

Now in terms of the contract being a fixed price contract, that's what GNG specialise in. Pretty much ALL of their contracts are fixed price contracts, and that is because of the nature of their clients, who are mostly wanna-be gold miners who usually have zero cashflow and need that cost certainty in order to secure the finance to build these projects.

Because GNG have been doing fixed-price-contracts for so long, they have become very good at it, and they very rarely have any cost blowouts. They are well aware of the cost pressures within their industry. In fact they would understand those a lot better than we would. They naturally build fat into these contracts to cover unexpected contingencies, but not too much fat. The space is not as competitive as you might think because most companies are wary of agreeing to build entire plants on a fixed price basis, particularly in the current environment. MACA acquired a company called Interquip a couple of years ago who are a direct competitor of GNG now in that they both do bid for these types of EPC contracts. GNG have the positive track record. Interquip do not. MACA recently reported significant cost over-runs with the King Of The Hills (KOTH) processing plant for gold miner Red 5 (RED) - see here: MLD-Operational-and-Market-Update.PDF

I believe Interquip won that contract based on price. GNG bid for it, but GNG's bid was at a higher price point and they were not prepared to lower it. In other words, GNG knew that MLD's Interquip division were bidding too low and they would likely lose money, and they were not interested in matching or undercutting MLD because they did not want to lose money themselves. That's how GNG operate. They set their prices to cover their costs and give themselves a decent profit, and if they are awarded the contract that's fine, and if they're not, then it's likely because someone else has bid too low and GNG are happy to let them have it.

It just gets back to doing what you do best and relying on your experience and expertise. And GNG are very good at what they do. That's why they pay such good dividends. Because they can.

Disclosure: Of the companies mentioned in this straw, I hold shares in BGL, GNG and MLD, but not RED.

https://the-pick.com.au/bellevue-gold-stage-1-feasibility-study-rates-mine-in-the-top-tier/

Bellevue Gold Project: Production, De-risking & Growth Update Presentation

Selected Slides from that (10-June-2022) Presentation:

22-June-2022: GR Engineering Services (GNG): FY22 GUIDANCE UPDATE

The Directors of GR Engineering Services Limited (ASX: GNG) (GR Engineering) are pleased to advise that full year revenue guidance for the year ending 30 June 2022 (FY22) is forecast to be in the range of $620 million to $640 million.

GR Engineering had previously advised that FY22 revenue was expected to be $580 million to $600 million.

Commenting on the improved revenue guidance, Mr Geoff Jones, Managing Director said:

“GR Engineering is projecting a strong FY22 performance based on the year to date results and the current pipeline of ongoing work. GR Engineering remains well placed to maintain its strong dividend yield to its shareholders through FY23 and future years.”

GR Engineering is intending to release its results for the twelve months ending 30 June 2022 on or around 23 August 2022.

Ends

Disclosure: I hold GNG shares. Based on yesterday's closing price of $1.76/share, their trailing (historical) dividend yield is 9%, PLUS the value of their franking credits, and their last 3 dividends have all been fully franked. However, their dividend yield is even better than that, because that 9% is based on their last two dividends, which were a 7 cps final div paid on 22-Sep-2021 and a 9 cps interim div paid on 25-March-2022. That interim dividend was +80% higher than their previous interim dividend (which was 5 cps), and their final dividend this year will be higher than the 7 cps final div they paid last year, because they've had a better year than they did last year, and they've just upgraded their guidance again.

GNG specialise in the design and construction of Gold Processing Plants, and they do most of their work here in Australia, with some work also done overseas. GNG tend to win the majority of the available EPC contracts for the design and construction of Australian gold processing plants, after preparing or assisting in the preparation of feasibility reports for companies who are developing gold projects and looking to build processing plants. That area of the market has been solid for GNG lately. However, that's not ALL they do. They work in other industries and they also own a division called "Upstream PS" or "Upstream Processing Solutions" which provides maintenance and operations services for the energy (oil & gas) industry. Upstream PS provides a fair chunk of GNG's recurring revenue via multi-year operations/maintenance contracts, whereas their other larger division tends to have more lumpy revenue due to the one-off nature of the contracts. GNG are always busy, but they get busier than usual at times, and this past year has been one of those times when they have had more work than usual - and shareholders reap the rewards of that via increased dividends.

One of the things I like best about GNG is that a large percentage of the company is owned by their board and KMP (key management personnel) so they think and make decisions like they own the business because to a large extent they do own the business. And that's another reason why the profits tend to flow through to the shareholders.

In my 17-May-2020 "Substantial Shareholders" straw for GNG, I listed all of the insider ownership which added up to 60.7% of the company, plus the 33.3% that was held by institutional shareholders - which at the time included CBA/Colonial First State, Carol Australia Holdings/Mitsubishi UFJ Financial Group (MUFJFG, which bought Colonial First State Global Asset Management off CBA in August 2019 and then rebranded it as First Sentier Investors) and Spheria Asset Management.

Today, 2 years and one month later, those three Insto's speak for 28.58% of GNG, plus we have a new shareholder who holds 9.88% of GNG and is listed as both "Superannuation and Investments HoldCo Pty Ltd" and "Comet Asia Holdings II Pte Ltd". All of the company founders/insiders who were listed as substantial holders in 2020 are still on the register except for Barry Patterson who retired from the GNG board in December 2020:

• David Joseph & Jane Frances Sala Tenna holds 7.66% (12,325,000 shares), previously 8.02% (12,325,500 shares),
• Joley Pty Ltd (George Botica) holds 6.54%, formerly 6.85%, still 10,524,000 GNG shares,
• Paksian Pty Ltd (Joe Ricciardo, company co-founder and father of Formula 1 race car driver Daniel Ricciardo) holds 6.09%, formerly 6.38%, still 9,798,578 GNG shares.
• Kingarth Pty Ltd (Tony Patrizi) holds 6.09% (9,795,000 shares), formerly 5.87% (9,025,000 shares),
• Joe Totaro, one of the co-founders, and previously the CFO and Company Secretary, remains on the board as a non-executive director, and still holds 8m GNG shares, which is 4.97% of GNG but was 5.21% of the company 2 years ago (due to dilution over the past two years due to executive remuneration),
• Peter Hood still owns half a million shares.
• Geoff Jones, GNG's Managing Director, owns 200,000 shares plus 864,447 share appreciation rights, formerly 772,134 shares, plus 1.1 million appreciation rights.
• Quintal Pty Ltd (Ron/Toni Harken) holds 5.28% (8.5m shares), formerly 6.18% (9.5m shares), and
• Beverley Jone Schier (Rodney and Beverley Shier) owns 5.03%, formerly 5.27%, although that reduction is once again just due to a small amount of dilution over the 2 years due to GNG issuing of a small number of new shares as part of their usual executive remuneration; Bev's shareholding remains at 8.1 million GNG shares.

So Geoff Jones has been selling down (apparently to satisfy "tax obligations") however he was never a substantial shareholder, and is not one of the original founders of the business. Geoff joined the company in 2013. Everyone else has either maintained their position, or trimmed their position slightly, or added to their position in the case of Tony Patrizi who was a co-founder and remains on as an executive director.

In May 2020 I calculated that the company founders and insiders plus those three institutional investors (insto's) held around 94% of the company, leaving a free float of only about 6%.

Back then, in my "Substantial Shareholders" straw, I also listed a number of other insider shareholders from their annual report that held less than 5% but still held GNG shares.

There has been some movement but it looks to me like at least 90% of the company is still held by insto's and insiders. So liquidity can be a problem. There are sometimes not much in the way of buyers or sellers for GNG, particularly the sellers, and there can be some pretty substantial gaps between the price points. Which adds to the volatility of the share price. It can be very choppy or not move much at all for days or weeks.

So I hold GNG and I like the company a lot. Today's revenue guidance upgrade is not unexpected but it's always nice to know that my investment thesis is playing out OK. Great company. Great income stock.

01-Nov-2021: Just as they did last year, GR Engineering (GNG) have provided conservative guidance and then upgraded it:

FY22 GUIDANCE UPDATE:

The Directors of GR Engineering Services Limited (ASX: GNG) (GR Engineering) are pleased to advise that full year revenue guidance for the year ending 30 June 2022 (FY22) is forecast to be in the range of $540 million to $560 million.

GR Engineering had previously advised that FY22 revenue was expected to be $440 million to $460 million.

GR Engineering is well positioned for significant growth in FY22 based on recently announced contract wins, increased confidence in the conversion of near term opportunities to engineering, procurement and construction (EPC) contracts and the execution of the existing order book. Importantly, GR Engineering continues to build its contracted pipeline of work into FY23. Commenting on the improved revenue guidance,

Mr Geoff Jones, Managing Director said: “GR Engineering is forecasting significant growth on the record results achieved in FY21. The pipeline of ongoing and near term work is growing and provides increased revenue and earnings visibility for both FY22 and FY23, enhancing GR Engineering’s ability to deliver returns to its shareholders”.

See here.

That's how it's done.

Underpromise and overdeliver. We're only one third of the way through FY22 (4 months in) so I fully expect another upgrade during the next 6 months.

Disclosure: I hold GNG shares. Excellent management. Heaps of skin in the game. Superb dividends. Lumpy revenue, but they're flying again this year (and last year).

24-Aug-2021:  Euroz Hartley's Analyst Trent Barnett has maintained his "Buy" call on GNG and raised his PT from $1.76 to $1.93.  I have attached Trent's update.

Brief Extract:

"GNG has released FY21 results, which were better than our estimates;  FY22 revenue guidance of $440-460m;

We have increased our earnings estimates, our valuation and price target;

We maintain our Buy recommendation. There remains a strong pipeline of tender opportunities, suggesting the order book can be replenished beyond FY22. However, the work required to win is building, and the share price is now factoring in higher repeating revenue, consequently, valuation risks are increasing;

That said, valuation multiples still remain attractive as long as earnings can be maintained (let alone if they continue to grow). Our model assumes lower earnings in FY23 as the Government oil & gas contract winds down (on our estimates). We hope to see upside to our FY23 estimates, but maintain conservatism for now;

Cash generation and return on capital is particularly strong, highlighting the capital light nature of the EPC industry, and the alignment of management and Board to shareholder returns;"

Disclosure:  I hold GNG shares in RL.  Their dividend yield is outstanding, and even better at the prices I paid for my GNG shares.  Their share price has been rising strongly recently, so I wouldn't be buying up here.  I have written about them here and also in the "Gold as an investment" forum.  I have also discussed them in relation to LYL (Lycopodium) - who I also hold.  LYL and GNG both specialise in the design and construction of gold processing plants.  Both are also in my SM portfolio here, as well as my RL income-generating portfolio.

24-Aug-2021:  GR Engineering Services (GRES, ASX: GNG), a company I have personally held for years, have reported this morning.  After a couple of rough years, they have had a really good one in FY21.  Their final dividend is going to be 7c fully franked, so 12c fully franked for the year (including the 5c interim div), which - ignoring the franking credits entirely - puts them on a dividend yield of 8.2%, with franking credits as a bonus for those of us who can and do use them.  That's based on their closing share price yesterday of $1.455.  Understandably, they're up today on this result, around +10% as I type this (@ $1.60).  

Key Earnings and Balance Sheet Data – Consolidated Group:

Revenue & Earnings:

• Revenue from operations: $392.4m (vs $222.4m in FY20)
• EBITDA: $37.2m (underlying) (vs $11.31m in FY20)
• PBT: $33.7m (vs ($9.7m) loss in FY20)
• Tax: $10.5m tax paid (vs ($2.5m) tax credit in FY20)
• NPAT: $23.2m (vs ($7.2m) loss in FY20)
• Basic EPS: 14.9 cps (vs (4.7 cps) loss (negative 4.7 cps) in FY20)

Balance Sheet & Cashflow:

• Cash: $69.0m ( vs $37.5m in FY20)
• Total equity: $51.6m (vs $34.7m in FY20)
• Net operating cashflow: $49.5m (vs $11.2m in FY20)

That's quite the turnaround.  For further details see their FY21 Financial Results - Media Release, their Preliminary Final Report and their Full Year Statutory Accounts FY21.

Very high insider ownership (skin in the game), and very well run, although revenue and earnings can be very lumpy due to the shorter-term contract nature of a lot of their EPC (Engineer, Procure, Construct) work. 

They do have recurring revenue however from their oil and gas services business, Upstream Production Solutions Pty Ltd (Upstream PS), which during FY21 achieved sustained revenue contributions primarily through a combination of operations, maintenance and brownfields projects servicing the coal seam gas (CSG), liquefied natural gas (LNG), carbon sequestration and onshore and offshore oil and gas sectors throughout Australia.

FY22 Update and Outlook

GR Engineering has a strong order book dominated by Australian projects and has been building its pipeline for both FY22 and FY23. The consolidated entity expects revenue for FY22 to be in the range of $440 million to $460 million.

GR Engineering’s design and construction order book for works currently being undertaken and which will continue into FY22 include:

• Thunderbox 6 Mtpa Expansion Project - $101.0 million EPC Contract with Northern Star Resources Limited in relation to the design, engineering, procurement, construction and commissioning of the Thunderbox 6 Mtpa Expansion Project. Work commenced in July 2021.
• Warrawoona Gold Project - $75.0 million EPC Contract with Calidus Resources Limited in relation to the design and construction of the processing plant and associated infrastructure for the Warrawoona Gold Project. Work commenced in late CY20.
• Newmont Tanami Gold Mine - $68.0 million subcontractor with RUC Cementation Mining Contractors Pty Ltd (RUC) in relation to Newmont Corporation's (Newmont) Tanami Gold Mine in Australia. RUC has been engaged by Newmont under a head contract to complete certain underground construction works for Newmont. GR Engineering is responsible for the construction and commissioning of the temporary and permanent works associated with the surface infrastructure. Work is expected to be completed by April 2023.
• Norseman Gold Project - $59.5 million EPC Contract with Pantoro Limited for the engineering, procurement and construction of a new processing plant for its 50% owned Norseman Gold Project in Western Australia. GR Engineering commenced work during the first quarter of CY21.
• Wiluna Gold Operation Project - $25.7 million EPC Contract with Wiluna Mining Corporation for stage 1 works relating to the concentrator development program for its Wiluna Gold Operations located in Western Australia. GR Engineering commenced work in December 2020 and commissioning is scheduled for the last quarter for CY21.

GR Engineering’s pipeline of work opportunities include:

• Abra Base Metals Project - $74.0 million project award by Abra Mining Pty Ltd (Abra Mining), for the design and construction of a 1.2 Mtpa lead sulphide flotation plant and ancillary infrastructure for the Abra Base Metals Project located in Western Australia. Abra Mining is 50% owned by Galena Mining Limited and 50% owned by Toho Zinc. GR Engineering has also been awarded additional work by Abra Mining to relocate, refurbish and commission the Higginsville Paste Plant.
• Thunderbird Mineral Sands Project - in May 2021, GR Engineering restarted early engineering and design works for the Thunderbird Mineral Sands Project for Sheffield Resources Limited and is progressing critical path design and procurement activities for the project. Owners site works activities have commenced this year, with EPC site works due to commence in April 2022. The final investment decision is expected in late 2021.
• Woodlark Gold Project - letter of intent with Geopacific Resources Limited for the proposed construction of a 2.4 Mtpa gold process plant on Woodlark Island in Papua New Guinea. Early works are being progressed as contract negotiations are being finalised.
• WA Battery Graphite Manufacturing Facility - letter of intent with EcoGraf (Australia) Limited for an engineering, procurement and construction contract for the development of a 20,000 tpa battery graphite facility in Western Australia. GR Engineering is undertaking early engineering works whilst working with EcoGraf to develop and execute the EPC contract.
• Bardoc Gold Project - appointed as preferred tenderer by Bardoc Gold Limited in relation to the EPC contract for the processing facility and associated infrastructure at its 100% owned Bardoc Gold Project.

Major projects completed during FY21 and subsequent to year end include:

• Thunderbox Paste Plant Project;
• Carosue Dam Operations Plant Expansion Project;
• Deflector Flotation Tails Leach Project;
• Lake Way Potash Project;
• Nullagine Mill Refurbishment Project;
• Davyhurst Restart Project;
• Sandy Ridge Waste Storage Project.

At 30 June 2021, GR Engineering was engaged on 30 studies across a broad range of commodities for projects both in Australia and abroad. This included the Hanlon Engineering team, based in Arizona, who also continued to win study work across multiple jurisdictions in the Americas.

These studies - which include PFS (pre-feasibility studies) and DFS (definitive feasibility studies, a.k.a. BFS or bankable feasibility studies) - are an important component of the work that GNG do, as a significant percentage of their EPC work comes directly from those studies.  The studies often lead to GNG being awarded the EPC contract for the plant build.  

Lycopodium (LYL), once the engineering arm of Monadelphous Group (MND, who also reported today, I hold MND & LYL as well as GNG) before they spun it out into a separate listed company, do the same thing that GNG do, except LYL's focus is mostly on Australian companies who operate outside of Australia, such as in Africa, South America, etc, whereas GNG concentrate primarilly on Australia.  GNG do sometimes complete work overseas however the vast majority of their projects are all located here in Australia.  LYL do sometimes complete work here in Australia (they are an Australian-based company), but traditionally their work has tended to be located overseas.  I hold both, and both can have very lumpy revenue so their profits can move wildly from year to year, but both are excellent at risk management and avoiding debt, and both have very high insider ownership, so management have plenty of skin in the game.  Both can also provide very good dividends, particularly in their good years.

However, both are smaller companies, and there can be limited liquidity, so neither are really suitable for most fund managers.  They are far better suited to smaller retail investors with a need for income and a high tolerance for lumpy results.

02-Feb-2021:  FY21 Guidance Update

Also, 08-Feb-2021:  Engineering Commences for Construction of EcoGraf 20,000tpa Battery Graphite Processing Facility

FY21 Guidance Update

The Directors of GR Engineering Services Limited (ASX: GNG) are pleased to advise that full year revenue guidance for the year ending 30 June 2021 (FY21) is forecast to be in the range of $340 million to $360 million. 

GR Engineering had previously advised that FY21 revenue was expected to be $280 million to $300 million.

Commenting on the improved revenue guidance, Mr Geoff Jones, Managing Director said: “GR Engineering has been able to build on its strong finish to FY20 and is forecasting record revenue for FY21 with improved EBITDA margins.  The pipeline of ongoing and near term prospective projects remains solid and provides revenue and earnings visibility beyond FY21.  The balance sheet has been strengthened and this has been underpinned by strong cash generation in the first half of FY21.”

GR Engineering is intending to release its results for the six months ended 31 December 2020 on 24 February 2021.

--- ends ---

EcoGraf Commences Engineering Works for Construction of New Processing Facility

EcoGraf Limited (ASX: EGR) is pleased to announce that it has authorised GR Engineering Services Limited (ASX: GNG) to undertake works for the detailed engineering design for the construction of its new 20,000tpa battery graphite facility in Western Australia.

The processing facility will use the Company’s proprietary EcoGraf™ purification technology to deliver electric vehicle, lithium-ion battery and anode manufacturers a source of high quality and sustainably produced battery anode material products.

A key advantage of the EcoGraf™ eco-friendly process is the elimination of the use of toxic hydrofluoric acid (HF), providing customers with “HF Free” battery products that support increased focus on supply chain Environmental, Social and Governance (ESG) requirements.

Commencement of these works marks a significant milestone for the Company and coincides with rapidly increasing global investment in the transition to clean energy, that is supported by strong Government actions across all key markets, to address the effects of carbon emissions and climate change.

EcoGraf has undertaken extensive technical testing in recent years with prospective customers to validate the quality and performance of its products, which will be complemented by its ability to also use EcoGraf™ purification technology in recycling battery anode materials for re-use in battery and industrial markets.

The new Western Australian development will be the first battery graphite processing facility to be established outside of China and EcoGraf is planning additional facilities in key geographical markets to meet expanding demand for battery anode material products. Recent forecasts for the battery graphite market to grow by over 30% per year over the next decade provide a highly positive outlook for the Company’s growth strategy as the world moves to electric vehicles and clean, renewable energy.

GR Engineering’s Managing Director, Geoff Jones stated: “We are pleased to be partnering with the EcoGraf team to deliver the engineering works for the construction of this new battery graphite processing facility. This new facility will be important in meeting the growing global demand for high quality battery related products and GR Engineering is excited to be part of this new Western Australian based industry.”

EcoGraf will provide further updates on the progress of the new development in due course.

--- ends ---

I hold GNG shares in RL and also in my Strawman portfolio.

Update:  On 31-May-21 they upgraded their FY21 full year revenue guidance again.  FY21 Revenue is now forecast to be in the range of $370 million to $390 million.

31-May-2021:  FY21 Guidance Update

The Directors of GR Engineering Services Limited (ASX: GNG) (GR Engineering) are pleased to advise that full year revenue guidance for the year ending 30 June 2021 (FY21) is forecast to be in the range of $370 million to $390 million.

GR Engineering had previously advised that FY21 revenue was expected to be $340 million to $360 million.

Both revenue and margins are expected to improve in the second half of FY21. The tightening of the Australian labour market has not impacted GR Engineering’s margins during FY21. GR Engineering continues to increase its workforce to meet demand and execute on its strong pipeline of work.

GR Engineering continues to successfully navigate through the impact of COVID-19, with no material impact on the FY21 results. GR Engineering continues to manage equipment deliveries in line with project schedules despite delays with international shipping.

Commenting on the improved revenue guidance, Mr Geoff Jones, Managing Director said:

“GR Engineering is projecting record FY21 revenue and EBITDA based on the year to date results and our current ongoing work. Given our project pipeline and near term prospective work and continued strong cash generation, GR Engineering remains well placed to deliver returns to its shareholders through FY22 and FY23.”

GR Engineering is intending to release its results for the twelve months ending 30 June 2021 on or around 24 August 2021.

--- ends ---

I hold GNG shares.  This is their 2nd upgrade.  Their last one was on 02-Feb-2021 (4 months ago), when they upgraded their previous FY21 revenue guidance from $280 to $300 million - to $340 to $360 million - and that's now been upgraded to revenue guidance for FY21 of $370 to $390m.  Of course, more revenue does not always translate into higher earnings (profits), but in GNG's case, it usually does.  

The image below shows the type of work that GNG tend to do - being the EPC (engineering, procurement and construction) of metals and minerals processing plants, mostly here in Australia, but also occasionally overseas.  The specialise in gold processing plants.  You can watch a video about what they do here.

March 2021:  Euroz Hartleys: GR Engineering Ltd (GNG): Generating cash, paying dividends, growing, industry tailwinds, net cash

Analyst: Trent Barnett - Senior Analyst, +61 8 9268 3052

Price Target: $1.75/sh, Recommendation: Buy

Generating cash, paying dividends, growing, industry tailwinds, net cash

Investment case

With an emerging resources boom in construction imminent, the medium-term outlook for GNG is very strong. Meanwhile, industry rationalisation is occurring. This should be positive for growth and margins. We see potential for some very large revenue and profit years ahead. In FY22, there is potential that there is a significant shortage of EPC capability, coupled with urgency to get projects into production, and we see potential for both strong revenue and margins.

We maintain our Buy.

Key points

• GNG reported 1H NPAT of $8.4m (we expected $6.9m). DPS was 5cps (we expected 4cps).
• EBITDA was $14.2m (we expected $12m), but that included $2.6m gain on sale of equity investments. Normalised EBITDA was similar to our estimate.
• Operating cash flow was $17.8m (we expected $9m). Capex was $1m, we expected $1.3m.
• Reported net cash was $50m (we expected $35m), ex AASB16.
• The Company has re-affirmed FY21 revenue guidance of $340-360m.
• We expect FY21 normalised EBITDA $25.9m and final DPS of 5cps.
• We expect FY22 EBITDA of $33.5m, and DPS of 10.5cps.
• We maintain our Buy recommendation.

Analysis

Although the 1H EBITDA was boosted by gain on sale of investments, we note that operating cash flow in 1H was very strong. Given there are several jobs finishing in 2H, the difference maybe provisioning. Hence, the 2H mining division is looking solid, in our view.

The oil & gas division had a good revenue and profit half, in part due to the Government contract for the Northern Endeavour (A$130m for CY21). We assume the contract expires later this year, although it is possible that the contract extends for sometime until the vessel is able to be disposed. As a division, we assume $170m of revenue in CY21, falling to ~$100m in CY22.

We recently increased our earnings estimates meaningfully. The strong industry tailwinds suggest further upgrades are possible throughout the year.

GR Engineering Ltd, Year End: 30 June

• Share Price: 1.33 A$/sh ($1.26 on 1-Apr-2021)
• Price Target: 1.75 A$/sh
• Valuation (DCF): 2.02 A$/sh
• WACC: 10.8%
• Terminal Growth: 0.0%
• Shares on issue: 155 m, diluted
• Market Capitalisation: 206.4 A$m
• Enterprise Value: 162.7 A$m
• Cash: 52.8 A$m
• Debt (inc AASB16): 9.1 A$m

Click on the link at the top for the full report, or open the attached file below.

Disclosure: I hold GNG shares.

02-Feb-2021:  Euroz Hartleys:  Quick Comment:  GR Engineering Services (GNG):  FY21 revenue guidance upgrade

Analyst:  Trent Barnett - Senior Analyst, +61 8 9268 3052

Recommendation: Buy, Price Target: $1.57/sh

FY21 revenue guidance upgrade

Key Points

• GNG has increased FY21 revenue guidance $340-$360m (from $280- $300m);
• There is no guidance for 1H, other than “the balance sheet has been strengthened and this has been underpinned by strong cash generation”;
• Before the guidance update today, we expected 1H revenue ~$150m and EBITDA ~$12.0m, with a 4cps DPS. We assume net cash of $35m at end December;
• The new guidance suggests upside to both to our 1H and FY21, including our DPS estimate.
• The 1H result is due on 24 February;
• We maintain our Buy recommendation. Upgrade is obviously positive. We have a $1.57/sh twelve month price target.
• Resource companies have contingency plans to manage WA covid19 lockdown/quarantines and are now executing those plans. While there is some potential for disruption, we expect limited financial impact given one of GNG (and its clients) core competencies is managing the potential for disruptions to logistics, people and safety risks in remote locations.

Investment Thesis

With an emerging resources boom in construction imminent, the medium-term outlook for GNG is very strong. Meanwhile, industry rationalisation is occurring. This should be positive for growth and margins. We see potential for some very large revenue and profit years ahead. In FY22, there is potential that there is a significant shortage of EPC capability, coupled with urgency to get projects into production, and we see potential for both strong revenue and margins. We maintain our Buy.

GR Engineering Ltd (GNG):

• Share Price: 1.18 A$/sh
• Price Target: 1.57 A$/sh
• Valuation: 2.17 A$/sh
• Shares on issue: 155 m(dil)
• Market Capitalisation: 183.1 A$m
• Enterprise Value: 149.0 A$/m
• Debt: 3.4 A$/m
• Cash: 37.5 A$/m
• Largest Shareholder: Spheria Asset Management (11.93%)

--- click on the link at the top to read the full "Quick Comment" report by Euroz Hartleys on GR Engineering ---

[I hold GNG shares.]

The day before that report was released (after GNG upgraded their revenue guidance) GNG's SP closed at $1.18, then at $1.28 on the day of the upgrade and the report, and they closed yesterday (Fri 26-Mar-2021) at $1.285, but in the meantime they've been as high as $1.49 - before they went ex-div on 11-Mar for their 5 cps fully franked interim dividend.  When they're not having a run-up into their very healthy divs, their SP can be very news-driven.

22-Feb-2021:  HY21 Financial Results - Media Release   plus   Half Year Financial Report   and   Appendix 4D - Preliminary Half Year Report

Note:  there has been a bug in the ASX website this morning and it is not displaying any GNG announcements after 10-Feb-2021 at the time I'm typing this (10:30am Sydney time) so I've used the announcements page for GNG as the destination for all three links above.  Once they sort out that bug, those 3 announcements will become visable.  I can access them all via Commsec, but you need to be logged in to Commsec to do that.

HY21 FINANCIAL RESULTS

HY21 Results Summary

• Revenue: $176.4 million (HY20: $95.3 million)
• EBITDA: $14.2 million (HY20 EBITDA Loss: $15.4 million)
• Profit Before Tax: $12.6 million (HY20 Loss Before Tax: $16.7 million)
• Interim dividend: 5.0cps (fully franked) (HY20: 2.0cps (unfranked))
• Cash: $52.8 million (31 December 2019: $20.7 million)

GR Engineering Services Limited (ASX:GNG) today announced its financial results for the half year ended 31 December 2020 (HY21).

Overview

GR Engineering reported HY21 revenue of $176.4 million representing an 85% increase from the half year ended 31 December 2020 (HY20). The HY21 EBITDA increased significantly to $14.2 million, representing a strong turnaround from the HY20 results.

The Board has resolved to declare an interim dividend of 5.0 cents per share, fully franked in light of the Company’s strong operating cash flow and balance sheet. Cash increased by $32.1 million to $52.8 million during the period from 31 December 2019 to 31 December 2020.

Commenting on the Company’s HY21 performance, GR Engineering’s Managing Director, Mr Geoff Jones, said:

“The first half of FY21 was characterised by heightened project and operations and maintenance activity across both the minerals processing and oil and gas services businesses. These increased levels of activity have generated strong revenue and earnings results during HY21 and this trend is expected to continue into the second half.

GR Engineering has been able to successfully increase its pipeline of ongoing and near term prospective projects by being awarded significant contracts across a broad base of commodities, including precious metals, base metals and industrial minerals. This has resulted in increased visibility in revenue and earnings for the remainder of FY21 and in future years.

The Company has maintained a strong balance sheet and it was pleasing to note the strong cashflow generation during HY21 which is expected to continue into the second half of the year and FY22. This combined with the strong order book, leaves the Company well placed to continue to deliver returns to its shareholders.

GR Engineering continues to navigate through the impact of the COVID-19 pandemic. Whilst providing challenges, the commitment and response of the team to COVID-19 has been excellent.”

Outlook

As previously announced, GR Engineering increased its FY21 revenue guidance, from a range of $280 million to $300 million, to a range of $340 million to $360 million. GR Engineering reaffirms the updated revenue guidance.

Dividend

An interim dividend of 5.0 cents per share (fully franked) has been declared. The ex-dividend date is 11 March 2021 and the record date is 12 March 2021. The interim dividend is payable on 1 April 2021.

Further Information

Please refer to GR Engineering’s HY21 Reviewed Financial Report for further information.

Ends.

--- please use the links at the top to access further information about today's results and announcements ---

[I hold GNG shares, and they are also on my Strawman.com scorecard.  They are in very good shape, with plenty of work.  The dividend is higher than I exected, and is fully franked (last 3 have been unfranked) so that's positive as well.  They always return excess cash to shareholders, as all of their management, board members and key personnel are shareholders.  They also always avoid debt and always keep a healthy net cash buffer.  In this case, that cash buffer was $52.8m at 31-Dec-2020, more than double the $20.7m from 12 months earlier, and a very healthy amount of cash on the balance sheet for a company with a market cap of only $200m.  They were just under that m/cap before today, but will likely be just over it after today's excellent results.]

02-Feb-2021:  Euroz Hartleys: Quick Comment: GR Engineering Ltd (GNG): Buy: FY21 revenue guidance upgrade

Analyst: Trent Barnet, Senior Analyst, +61 8 9268 3052

• Recommendation: Buy
• Price Target: $1.57/sh
• Share Price 1.18 A$/sh ($1,25/sh on 19-Feb-2021)
• Valuation: 2.17 A$/sh
• Shares on issue: 155 m(dil)
• Market Capitalisation: 183.1 A$m
• Enterprise Value: 149.0 A$/m
• Debt: 3.4 A$/m
• Cash: 37.5 A$/m
• Largest Shareholder: Spheria 

FY21 revenue guidance upgrade

Key Points

• GNG has increased FY21 revenue guidance $340-$360m (from $280- $300m);
• There is no guidance for 1H, other than “the balance sheet has been strengthened and this has been underpinned by strong cash generation”;
• Before the guidance update today, we expected 1H revenue ~$150m and EBITDA ~$12.0m, with a 4cps DPS. We assume net cash of $35m at end December;
• The new guidance suggests upside to both to our 1H and FY21, including our DPS estimate.
• The 1H result is due on 24 February;
• We maintain our Buy recommendation. Upgrade is obviously positive. We have a $1.57/sh twelve month price target.
• Resource companies have contingency plans to manage WA covid19 lockdown/quarantines and are now executing those plans. While there is some potential for disruption, we expect limited financial impact given one of GNG (and its clients) core competencies is managing the potential for disruptions to logistics, people and safety risks in remote locations.

Investment Thesis

With an emerging resources boom in construction imminent, the medium-term outlook for GNG is very strong. Meanwhile, industry rationalisation is occurring. This should be positive for growth and margins. We see potential for some very large revenue and profit years ahead. In FY22, there is potential that there is a significant shortage of EPC capability, coupled with urgency to get projects into production, and we see potential for both strong revenue and margins. We maintain our Buy recommendation.

--- click on the link above for the full EH report on GNG ---

[I hold GNG shares, and have posted quite a few straws about them here.  The insider ownership levels are very high, and they are very well run by conservative management who always maintain a good net cash buffer which is a very good idea in the contracting game.  Their main niche is doing feasibility studies and designing and constructing gold processing plants, although they also work for copper miners, nickel miners, mineral sands companies, and other commodities and industries.  GNG mostly do work here in Australia, but they do occasionally work overseas as well.  GNG also have a second division called Upstream PS (Upstream Processing Solutions) which services the energy sector, specifically oil and gas companies both onshore and offshore.  Most of GNG's Upstream PS revenue is recurring in nature via multi-year maintenance contracts, whereas their other work is more lumpy because it's shorter term contracting work.  It's a small company which has good years and bad years, but very well run, and will not go broke with this management team in place.  They do NOT go into debt, and they very rarely make acquisitions.  Most years their dividend yield is quite high also, although not always fully franked.  The last three divs have all been unfranked.  I am currently only holding them in one of my three main RL portfolios, plus they are also on my Strawman.com scorecard.]

10-Feb-2021:  GNG: Letter of Intent - Norseman Gold Project

plus:  PNR: EPC Contract Awarded to GR Engineering for Norseman Project

Pantoro Limited (ASX:PNR) is pleased to advise that it has provided a Letter of Intent for award of engineering, procurement and construction works for the processing facility at the Norseman Gold Project to GR Engineering Services (ASX:GNG) (GRES). Detailed engineering works will commence immediately and orders will be placed for long lead items including the 3.3 MW ball mill.

Contract documentation is being finalised and is expected to be executed before the end of February 2021. The contract value is approximately $57M and will be awarded as a guaranteed maximum price contract. The $57M contract value is inclusive of the crushing circuit associated with the plant. The DFS announced in October 2020 contemplated a build-own-operate-transfer (BOOT) for the crusher with the transfer planned in year three. The upfront purchase is superior on an NPV basis relative to the BOOT arrangement.

Separately, demolition works for the existing plant on site have been awarded with commencement of site works planned for mid-February.

Commenting on the award, Managing Director Paul Cmrlec said:

“The competitive tender process drew a number of quality submissions reflecting the quality of the project and of the preparatory work completed as part of the DFS.

We are pleased that GR Engineering Services (GRES) will undertake work with their proven track record in new processing plant builds in recent years. GRES has been the dominant supplier of new processing plant builds in Western Australia in recent times, and we look forward to drawing on their experience in construction of the plant at Norseman.”

About the Norseman Gold Project:  Pantoro Limited acquired 50% of the Norseman Gold Project in 2019. Pantoro is the manager of the unincorporated joint venture, and is responsible for defining and implementing the exploration and development work programs, and the day to day management of the operation.

The Norseman Gold Project is located in the Eastern Goldfields of Western Australia, at the southern end of the highly productive Norseman-Wiluna greenstone belt. The project lies approximately 725 km east of Perth, 200 km south of Kalgoorlie, and 200 km north of Esperance.

The current Mineral Resource is 4.2 million ounces of gold with an Ore Reserve of 602,000 ounces. Pantoro announced a maiden Ore Reserve on the Norseman Project in conjunction with its Phase One DFS on 12 October 2020. Many of the Mineral Resources defined to date remain open along strike and at depth. In addition, there are numerous anomalies and mineralisation occurrences with a number of highly prospective targets already identified.

The project is serviced by first class infrastructure at the project, local shire, and national infrastructure levels with everything required to commence mining already in place. Infrastructure is generally in good condition and Pantoro has awarded the EPC contract for the engineering, procurement and construction works for the processing facility.

Pantoro’s interest in the Norseman Gold Project is secured through a mortgage over the entire project tenure as well as a priority deed ranking Pantoro’s security interest first.

Historically, the Norseman Gold Project areas have produced over 5.5 million ounces of gold since operations began in 1935, and is one of, if not the highest grade fields within the Yilgarn Craton.

--- ends ---

[That was PNR's announcement.  Click on the first link above for GNG's announcement.  I hold shares in both GNG and PNR.  I bought back into GNG on Monday afternoon after posting a straw about them beginning the engineering and design work for EcoGraf's (EGR's) new 20,000tpa battery graphite processing facility in Western Australia - and GNG's recent guidance/profit upgrade announcement.  I note that EGR have gone into a trading halt this morning pending a capital raising announcement.  I do not hold EGR shares.  PNR and GNG are also both on my Strawman.com scorecard.  I have held Pantoro (PNR) for about 3 years now, as I think they are an up-and-coming (emerging) gold producer, who are already in production up at Halls Creek (also in WA), with a lot more production coming at Norseman (in the southern half of WA, NE of Esperance).  I like that their Halls Creek gold production funds most of their Norseman activities, so they rarely tap shareholders for more funds.  It's good to see GNG back doing what they do best - gold processing plants.]

23-Dec-2020:  Upstream PS - Northern Endeavour FPSO Contract

CONTRACT AWARD – UPSTREAM PRODUCTION SOLUTIONS NORTHERN ENDEAVOUR FPSO

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 one year contract with the Department of Industry, Science, Energy and Resources of the Australian Government (DISER) to provide operations, maintenance and project services to the Northern Endeavour FPSO (FPSO) and associated infrastructure (the Contract) in preparation for a disconnection and removal of the FPSO.

As previously announced on 15 May 2020, Upstream PS has been engaged by the Commonwealth since mid-February 2020 to provide operations and maintenance services to the FPSO, in a nonproducing state. The current contract is due to expire on 31 December 2020.

The term of the new Contract expires on 31 December 2021. Based on the current budget for core operation and maintenance services and planned pre-disconnection project activities, it is anticipated that revenue from the Contract will be approximately $130 million.

Commenting on the award of the Contract, GR Engineering’s Managing Director, Geoff Jones stated that:

“We are pleased to continue working with DISER and the relevant regulatory bodies to safely manage and maintain the FPSO and execute the required pre-disconnect preparation activities to support a safe removal of the FPSO in the future.”

Ends

[I hold GNG shares.]

Note:  A floating production storage and offloading (FPSO) unit is a floating vessel used by the offshore oil and gas industry for the production and processing of hydrocarbons, and for the storage of oil.

Further Reading/Viewing:  ENB: Energy News Bulletin (www.energynewsbulletin.net): Taxpayers on hook for $130M more in Northern Endeavour expenses

And: https://www.energynewsbulletin.net/tag/northern-endeavour

02-Oct-2020:  Euroz: Quick Comment: GR Engineering Services (GNG $1.02) , Buy, Contract Win

Euroz Analyst: Harry Stevenson, 2nd October 2020, Buy, Price Target: $1.27/share

Contract Win

Key Points

• GR engineering has been appointed as EPC contractor by Wiluna Mining Corporation [formerly Blackham Resources] for stage 1 works relating to the concentrator development program.
• Contract sum is $25.7m, with work to commence in early December and commissioning scheduled for October 2021.

We recently initiated on GR Engineering Services with a Buy Recommendation and Price Target of $1.27.

GNG has guided revenue of between $280m - $300m; with recent contract wins and a healthy order book we continue to look to the upper side of guidance.

Historically the company has generated ~50% of revenue in projects related to gold sector, leaving the company well placed to benefit from wider gold sector momentum.

• We look for FY’21 dividend of 8cps, offering attractive 7.8% yields at current price.

Investment Thesis

Delivery of $280m-300m in contracted revenue should leave GNG well placed to continue to pay investors healthy dividends, while additional contract wins and wider cyclical growth in the sector should see the stock trade up. Buy.

--- click on the link above for the full "Quick Comment" report on GNG from Euroz ---

[I hold GNG shares.  They're small, but they have no debt, net cash, huge insider ownership, and are very good at what they do, plus they are very well managed.  The high gold price should continue to provide them with a good tailwind as more gold projects achieve FID and financing.  GNG are often the company who does the PFS and/or BFS/DFS for these projects, and those feasibility studies often lead into them also being awarded the EPC contracts to design and build the processing plants.  They have been busy doing many feasibility studies for various companies, and those studies are only mentioned within their half year and full year reports; they are never announced as they are awarded - like their EPC contract awards are - because the studies are worth a lot less - in revenue terms.  However, their real value is that GNG will already have a foot in the door with these companies and a working relationship already established if and when an EPC contract is awarded.]

Notes:

• EPC = Engineering, Procurement & Construction; - or Engineer, Procure & Construct.
• PFS = Pre-Feasibility Study.  The pre-feasibility study is an intermediate step in the engineering process to evaluate the technical and economic viability of a mining project.
• BFS = Bankable Feasibility Study.  A BFS represents a base case for financiers.  A positive BFS is one that satisfactorily provides all of the information necessary for a bank to determine that the project is viable.
• DFS = Definitive Feasibility Study.  The most detailed form of feasibility study which determines definitively whether to proceed with a project.
• FID = Final Investment Decision.  

25-Sep-2020:  Euroz: GR Engineering Services Ltd (GNG $1.00): Buy - Initiation of Coverage

Euroz Analyst: Harry Stevenson, 25th September 2020, Buy, Price Target: $1.27/sh

Initiation of Coverage

Introduction

GR Engineering Services Ltd (GNG) is a leading process engineering and contracting company headquartered in WA with a global footprint. The company employs around 450 staff specialising in providing high quality engineering, design and construction services across the mining and mineral and processing industries and the provision of operations and maintenance services to the oil and gas sector. GNG’s origins can be traced back to 1986, with the company listing on the ASX in 2011 following a $30m IPO. Over listed life GNG has experienced cyclical growth and established a reputation for delivering projects on time and within budget.

GNG provided a solid set of FY’20 results with a slight beat on FY’20 guidance, a good result in the midst of wider disruptions. GNG maintained healthy cash flows and balance sheet position and declared a final dividend of 4cps (interim 2cps) yielding 6%.

GNG has provided early FY’21 guidance expecting revenue to be in the range of $280m to $300 with improved EBITDA margins, with this outlook being supported by $250m in new contract wins since the beginning of FY year. In our opinion GNG is well placed to deliver investors capital growth and dividend yields over the coming financial year.

We initiate coverage with a Buy Recommendation and a Price Target of $1.27

Valuation

Currently trading at a discount to peers, our 12-month price target of $1.27/sh is derived on EV/EBIT multiple, at $1.00 GNG offers attractive 8% dividend yield on our forecasts.

Forecasting

Our forecasts are in line with company guidance, given the healthy orderbook and outlook we look to this with upwards bias, while we look for a return to historical EBITDA margins at ~7-8%. We anticipate a second half skew as a number of new projects ramp up towards the back end of the year.

Our segmental forecasts look for solid growth in the resources sector, as the oil and gas segment remains broadly in line with PY.

Other Matters

We also examine the balance sheet, risks, shareholder base, board and management and current projects all of which are fit for purpose.

Summary

GNG has delivered a strong set of FY’20 results having navigated Covid-19 with minimal disruptions to operations. GNG’s FY’21 guidance is largely supported by exisiting order book and in our opinion GNG could outperform on the upside. The company has paid a dividend to investors in every financial year since listing and the company is well placed to pay a healthy dividend in FY’21. GNG looks set to benefit from an improving global resource market and a particularly strong global gold market as new projects continue to come online.

--- click on the link at the top to download and view the entire report on GNG from Euroz Securities, including their disclaimer ---

[I hold GNG shares.]

02-Oct-2020:  EPC Award - Wiluna Gold Operation

EPC Contract – Wiluna Gold Operation - Concentrator

GR Engineering Services Limited (ASX: GNG) is pleased to announce that it has been appointed as EPC contractor by Wiluna Mining Corporation (Wiluna Mining) for stage 1 works relating to the concentrator development program for its Wiluna Gold Operations located in Western Australia (the Project).

The contract sum is $25.7 million. GR Engineering will commence work in early December with commissioning scheduled for October 2021.

Commenting on the award, Mr Geoff Jones, Managing Director said:

“GR Engineering is pleased to be working with the Wiluna Mining team on this exciting project, and it further enhances GR Engineering’s reputation as the leading gold EPC contractor in Australia.”

[I hold GNG shares.  At $25.7m, it's not a particularly large contract, but it's still work for GNG.]

17-Sep-2020:  Preferred Tenderer - Warrawoona Gold Project   and also   CAI: Construction underway at Warrawoona Gold Project

[I hold GNG, but not CAI.]

31-Aug-2020:  FY20 Investor Presentation

That was released 6 days after their results were announced (on Aug 25th) so I missed it.  It provides a very good overview of the company and the investment proposition.  [I hold GNG.]

25-Aug-2020:  FY20 Financial Results - Media Release   and   Preliminary Final Report   plus   Full Year Statutory Accounts FY20

GNG have reported increased revenue (+22% to $222.4m), but underlying EBITDA of only 11.3m, and NPAT that was actually NLAT (net loss after tax) of (7.2m) with a net loss before tax of (9.7m). 

The loss is primarily due to a $17.6m write-down associated with the impairment of an outstanding receivable owed by Timor Sea Oil & Gas Pty Ltd (liquidators appointed) (TOGA) to GNG’s wholly owned subsidiary, Upstream Production Solutions Pty Ltd (Upstream PS).

The upside is they are expecting a better year in FY21.  They said:

The 22.0% growth in revenue from the prior year and the solid underlying EBITDA contribution was achieved as a result of a strong second half result by the consolidated group. 

The Company has continued to secure future work in FY21 and beyond, with $170 million in work being awarded from 1 June 2020. 

Commenting on the Company’s FY20 financial performance, GR Engineering’s Managing Director, Mr Geoff Jones, said: 

“It is satisfying to note that despite the difficult trading conditions impacting the mining and oil and gas sectors, GR Engineering was able to achieve a strong second half result, build its future pipeline of work with Tier 1 clients and continue to deliver returns to its shareholders. COVID-19 has had no material impact on the FY20 results. 

As previously reported at 31 December 2019, the FY20 financial results were negatively impacted by the impairment of an outstanding receivable owed by Timor Sea Oil & Gas Pty Ltd (liquidators appointed) (TOGA) to the Company’s wholly owned subsidiary, Upstream Production Solutions Pty Ltd (Upstream PS). The amount written off was $17.6 million. 

It was pleasing that, despite the TOGA debtor write-off, cash at bank increased significantly to $37.5 million at 30 June 2020 from $20.7 million at 31 December 2019. This strong cash position means that GR Engineering is well capitalised to deliver its FY21 pipeline of work. 

The Company’s Total Reportable Injury Frequency Rate for FY20 was 3.77 comparing favourably to the FY19 result of 4.99. GR Engineering pursues continuous improvement in its commitment to safety, with its primary objective being the achievement of a zero harm workplace environment on all jobs and at all locations. 

The Company’s strong order book into FY21 and anticipated strong cash flow generation leaves it well placed to continue to deliver returns to its shareholders.” 

A final dividend of 4.0 cps (unfranked) has been declared, resulting in total FY20 dividends of 6.0 cps. 

--- ends ---

That dividend is a nice surprise.  The interim dividend was only 2c, half of the pcp.  This one is 4c, double the pcp.  It means that they will pay 6c for FY20 in total, same as they paid for FY19.

FY20 Update and Outlook 

Since 1 June 2020, GR Engineering has increased its order book by $170 million. As the consolidated entity moves into FY21, GR Engineering has a strong order book dominated by Australian projects. The consolidated entity expects revenue for FY21 to be in the range of $280 million to $300 million, with improved EBITDA margins.

Using the guidance mid-point ($290m), that's an expected revenue increase of 30% in FY21 (compared to their $222.4m FY20 revenue, which itself was a +22% increase over FY19 revenue), and improved EBITDA margins are also welcome.  They also remain a great income play, paying 6c p.a. on an SP that is below $1, that's over 6%, which is good even without any franking credits (dividends are unfranked).

They also continue to have no debt, and their cash has increased during FY20 from $31.4m at 30-June-19 to $37.5m at 30-June-20, significantly up on their 31-Dec-19 cash of $20.7m.  In addition, GR Engineering’s shareholding in Ora Banda Mining Limited (OBM) is valued at $5.3 million, based on OBM’s share price at 19 August 2020.  

GNG paid $6.1 million in dividends in FY20, so their high dividend payout ratio is sustainable in my opinion - when they have $37.5m of net cash plus $5.3m of OBM shares.

Happy to keep holding them - I expect them to move over $1 either today or soon, and remain there, particularly if they announce more new contract wins over the coming weeks and months.

The first link above - at the top of this straw (the media release) - contains details of all of their current major contracts for FY21 and a few of their larger opportunity pipeline contracts - being ones where they have received a letter of intent but the projects are waiting on finance approvals.  Those projects are ones where there is a 90% or better chance that GNG will do the work if the projects get funded.

Happy to be holding GNG.  Click on the links at the top for more.

10-Feb-2020:  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:

13-Jan-2020:  EGR: EcoGraf signs GR Engineering for WA Battery Facility

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.

15-7-2020:  EPC Contract - Davyhurst Restart Project

This is a $10.8m engineering, procurement and construction (EPC) contract with Ora Banda Mining Limited (OBM) associated with the restart of the existing Davyhurst Gold Processing Plant located in Western Australia (Davyhurst Restart Project). 

The contract will be undertaken on a fixed price basis which includes a provisional sum component. The scope of works include the refurbishment, optimisation and recommissioning of the existing 1.2 Mtpa Davyhurst Gold Processing Plant, borefields and associated infrastructure. Work will start immediately and is expected to be completed in the first quarter of calendar year 2021.

Commenting on the award, GR Engineering’s Managing Director, Mr Geoff Jones, said: “GR Engineering is pleased to have been awarded the EPC contract for the Davyhurst Restart Project. We are excited to be working with Ora Banda’s management team and look forward to Ora Banda becoming Australia’s newest gold producer.”

--- ends --- 

Background:  This project, under its previous owners, Eastern Goldfields (was ASX: EGS) and Michael George Fotios, who used to run EGS, did not pay GNG the $10m owing for the work GNG performed last time (in 2016 or 2017) to get Davyhurst up and running again, and running well.  EGS had their own problems, and GNG were adversely affected by the cashflow problems that EGS were experiencing.  GNG were not alone either.  The contract miners at Davyhurst (Pit & Portal I believe) were also not paid.  There were others.  Court cases ensued.  So here we are, a few years later, EGS was recapitalised and rebranded as Ora Banda Mining, got a new ticker code (OBM), and Fotios is now out of the picture (since August 2018, which was a pre-condition of the refinancing / recapitalisation apparently). I would imagine that GNG would have demanded most of the cash up front on this occasion, and the reference to a "provisional sum component" in this announcement suggests to me that this was indeed the case.

[I hold GNG shares]

30-June-2020:  https://www.miningmonthly.com: More paste work for GRES

30-June-2020:  EPC Contract - Thunderbox Paste Plant and Variation Award

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:

• Jun 20:  $107m EPC & EPCM contract for Salt Lake Potash’s Lake Way sulphate of potash (SOP) processing facility and non-process infrastructure in WA. GNG is expecting the “majority of revenue” from the contract to be realisedin FY21. 
• May 20:  $32m, 6-month, operations & maintenance contract for the Northern Endeavour FPSO with the Federal Government’s Department of Industry, Science, Energy and Resources. Services were previously provided under a short-term agreement and there is also an option to extend at the end of the initial 6-month term.
• Apr 20:  3-year contract renewal with Triangle Energy for operations and maintenance services at its Arrowsmith StabilisationPlant and Cliff Head Alpha Offshore Platform Facility in the Perth Basin, WA.  

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:

• $74m conditional EPC contract for Galena Mining’s Abralead-silver plant and ancillary infrastructure in WA. Notice to proceed is subject to, inter alia, Galena achieving financial close on its project financing facilities.
• Conditional letter of intent for the EPC of GeopacificResources’ Woodlark gold plant in PNG. While no contract value was disclosed, it is noted Geopacific’srecent investor materials refer to process plant capex of ~$96m.  

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:

• FY21e revenue ranges between $200m to $274m under the 3 scenarios. This compares to GNG’s FY20 guidance of $200m-$220m which it reaffirmed at its 1H20 result.
• FY21e cashflows remain positive even under our conservative scenario #1 (~$9m), partly due to GNG’s capital-lite business model – see summary table [click on link above to access that table]
• FY21e EV/EBIT multiples range from 5.1x to 9.6x (vs peer average ~8x).

--- 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.” 

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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.

HIGHLIGHTS:

• The Engineering, Procurement and Construction (EPC) contract involves the provision of plant, labour, materials and construction services for the process plant and NPI valued at A$85m.
• The Engineering, Procurement and Construction Management (EPCM) contract involves the provision of services for the engineering, procurement and construction management for areas of the process plant and NPI, valued at A$22m.
• Terms and risk allocation within the contracts have been approved by the Company’s debt partner.
• Following substantial progress in detailed engineering and vendor procurement, the Project capital budget has increased marginally from A$254m to A$264m, including an unallocated A$18m contingency.
• Bulk earthworks for the site is now complete, while major vendor procurement is 77% complete and offsite fabrication acitivites are substantially progressed.
• Construction of the permanent 100-person village was completed in April, with an additional 160 rooms also now complete in preparation for construction ramp up.
• The EPCM and EPC contracts are conditional on financial close and GRES continue to advance project delivery under the existing early services arrangement.  

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:

http://www.intelligentinvestor.com.au/company/GR-Engineering-Services-Limited-GNG-6563954

http://www.miningbusiness.net/content/gr-engineering-services-founder-pulls-slow-lane

Joe Ricciardo also retired from the MinRes (ASX:MIN) board at the same time.

http://www.gres.com.au/corporate/corporate-overview/default.aspx

http://www.gres.com.au/corporate/competitive-advantage.aspx

http://www.gres.com.au/corporate/business-model.aspx

http://www.gres.com.au/corporate/board-of-directors.aspx

http://www.gres.com.au/corporate/senior-management.aspx

http://www.perthnow.com.au/news/wa/gr-engineering-in-premium-asx-debut-ng-ca9fab245988a2513f16143c1e9ce3cb

2011 IPO Prospectus for GNG (GRES)

http://simplywall.st/stocks/au/materials/asx-gng/gr-engineering-services-shares/news/what-percentage-of-gr-engineering-services-limited-asxgng-shares-do-insiders-own/

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:

• David Sala Tenna, co-founder, and current Manager - Projects, owns 12,325,500 shares (8.03% of GNG).
• George Botica was one of the original owners of all or part of one or more of the businesses that became GR Engineering prior to their 2011 float.  Joley P/L ("Botica Family Trust") owns 10,524,000 shares (6.86%)
• Joe Ricciardo (father of Formula One racing car driver Daniel Ricciardo) was a co-founder of GRES, and his private company, Paksian P/L, owns 9,798,578 shares (6.38%).
• Ron Harken was one of the original owners of all or part of one or more of the businesses that became GR Engineering prior to their 2011 float.  He is survived by his wife, Toni Harken, whose private company, Quintal P/L, owns 9,500,000 shares (6.19%).
• Tony Patrizi was a co-founder of GRES, and his private company, Kingarth P/L, owns 9,025,000 shares (5.88%).  Tony is also a director of GRES (GNG).
• Rodney Schier is an Engineering Manager at GRES according to his LinkedIn.Com profile.  He was also one of the original owners of all or part of one or more of the businesses that became GR Engineering prior to their 2011 float and his wife Beverley Schier owns 8,100,000 shares or 5.28% of GNG.
• Barry Patterson was also one of the co-founders, and is a current director, and his company Polly P/L holds 7,500,000 shares, or 4.89%.
• Steve Kendrick is one of the Managers (Projects) at GRES and Steve owns 4,875,000 shares (between his Family account holding and his Kendrick Investments P/L holding) which is 3.17%.
• Michael Woodhouse was one of the original owners of all or part of one or more of the businesses that became GR Engineering prior to their 2011 float and his wife Barbara Ann Woodhouse owns 3,500,000 shares (2.28%) in the Woodhouse Family account and the two of them (Mike and Barb) own another 813,950 shares (0.53%) in their Woodhouse Family Retirement Fund account.
• Geoff Jones, GNG's Managing Director, owns 772,134 shares, plus at least another 1.1 million appreciation rights.
• Peter Hood, a non-executive Director, owns 500,000 shares.
• The only board member that doesn't own shares is their independent non-executive Chairman, Phil Lockyer.

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.

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:

• David Sala Tenna, co-founder, and current "Manager - Projects", owns 12,325,500 shares (8.02% of GNG).
• George Botica was one of the original owners of all or part of one or more of the businesses that became GR Engineering Services (GRES) prior to their 2011 float. Joley P/L ("Botica Family Trust") owns 10,524,000 shares (6.85%).  An additional 0.97% is registered to Sistaro Pty Ltd whose beneficial owners are Joley and Edna Rae Botica.
• Joe Ricciardo, a GRES co-founder (and father of Formula 1 Race Car driver Daniel Ricciardo), holds 9,798,578 shares (6.38%) in his private company Paksian P/L.  There is also an additional 0.66% of the company registered in the name of Mr Cono Antonino Angelo Ricciardo.
• Ron Harken was one of the original owners of all or part of one or more of the businesses that became GR Engineering prior to their 2011 float.  He is survived by his wife, Toni Harken, whose private company, Quintal P/L, owns 9,500,000 shares (6.18%).
• Tony Patrizi was a co-founder of GRES, and his private company, Kingarth P/L, owns 9,025,000 shares (5.87%).  Tony is also a director of GRES.
• Rodney Schier is an Engineering Manager at GRES according to his LinkedIn.Com profile.  He was also one of the original owners of all or part of one or more of the businesses that became GR Engineering prior to their 2011 float and his wife Beverley Schier owns 8,100,000 shares or 5.27%.
• 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.
• Barry Patterson was also one of the co-founders, and is a current director, and his company Polly P/L holds 7,500,000 shares, or 4.88%.  Patterson is also a director of Dacian Gold (DCN) and owns almost 20 million Dacian shares, way more than any other DCN shareholder.
• Terry Condipodero was a director of GRES prior to their ASX listing, and he was also "Manager - Procurement / HSE" for GNG at that time and since, and Terry hold 3.91% through his private company Ledgking P/L.
• Steve Kendrick is one of the Project Managers at GRES and Steve owns 4,875,000 shares (between his Family account holding and his Kendrick Investments P/L holding) which is 3.17%.
• Michael Woodhouse was one of the original owners of all or part of one or more of the businesses that became GR Engineering prior to their 2011 float and his wife Barbara Ann Woodhouse owns 3,500,000 shares (2.28%) in the Woodhouse Family account and the two of them (Mike and Barb) own another 813,950 shares (0.53%) in their Woodhouse Family Retirement Fund account.
• Geoff Jones, GNG's Managing Director, owns 772,134 shares, plus at least another 1.1 million appreciation rights.
• Peter Hood, a non-executive Director, owns 500,000 shares.
• The only board member that doesn't own shares is their independent non-executive Chairman, Phil Lockyer.

Next, there are an additional 3 institutional substantial shareholders:

• 11.6% is owned by CBA, which includes shares held by Colonial First State, a subsidiary of CBA.
• 11.3% is owned by Carol Australia Holdings, which is a subsidiary of Japanese asset manager Mitsubishi UFJ Financial Group (MUFJFG), which bought Colonial First State Global Asset Management (CFSGAM) off CBA in August last year and then rebranded it as First Sentier Investors the following month.  Carol Australia was part of CFSGAM so is now part of First Sentier (owned by MUFJFG).  CFSGAM was a separate company to Colonial First State.  The latter is still owned by CBA.
• 10.43% of GNG is owned by Spheria Asset Management.

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.

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.”

Ends. 

[Disclosure:  I hold GNG shares.]

05-Mar-2020:  Moelis:  GR ENGINEERING SERVICES LTD (HOLD):  1H20 result disappoints but near-term outlook improving

GNG FY2020 H1 Results (nothing special, but positive outlook):

25-Feb-2020:  HY20 Financial Results - Media Release

Half Yearly Report and Accounts

Appendix 4D - Preliminary Half Year Report

GR Engineering Services (GRES, ASX:GNG) have released two new announcements concerning their Upstream PS division this week:

20-Feb-2020:  Upstream PS awarded Blacktip Maintenance Contract Extension

17-Feb-2020:  Northern Endeavour FPSO operations and maintenance contract

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.

24-May-2019:  I have mentioned in other straws that one of the reasons why I like GR Engineering Services (GRES, ASX:GNG) so much (and have held them since soon after they first listed on the ASX) is the level of Management ownership, which is often referred to as "skin in the game".  All of the board and senior management hold shares in the company, and a number of them are substantial shareholders.  There are also founders and spouses/families of deceased founders who are also still substantial shareholders in GNG.  The only drawback of that is that it reduces the "free float", which is the name we give to the remainder of the shares on issue which are not tied up with those long-term holders, i.e. the shares available to trade on the market for Joe/Jo Average.  This reduced free float, in combination with the small size of the company (sub-ASX300 with a market cap of less than $150m) results in some big moves sometimes because of reduced liquidity - meaning less shares available to buy and sell and often substantial gaps between the lowest offers and the highest bids.  A buy or sell "at market" can sometimes move the SP 5% or more with one trade.  They are also engineering and construction contractors, with all of the risk that brings with it.  We all remember RCR...

GNG are mostly involved in fixed price or guaranteed-maximum-price (GMP) contracts, which swings the risk pendulum firmly back to GNG (rather than their clients).  Their clients need that cost certainty.  Without it, most wouldn't be able to secure financing for their projects.  GNG are VERY good at what they do and they don't get themselves into trouble with cost blowouts too often.  However they still have to deal with a lot of small miners or wanna-be-miners, who are just starting the journey, attempting to move from being explorers to developers to producers.  GNG usually become involved during the development stage and take these companies through to production, but not all of these companies find themselves in a position to pay their bills as they fall due.  They can have commodity prices move against them, or have finance issues (such as finance deals falling through or getting renegotiated), or they can encounter other issues that are completely unrelated to anything that GNG are involved in.  One quick example of where this occurred is Eastern Goldfields (EGS).  They are now in voluntary administration, and GNG are going to have to write off a few million that they are unlikely to ever receive from EGS.

However, having followed them for a number of years now, I rate GNG's risk management as first rate.  They never carry net debt.  Every 6 months, they always report a net cash position, and they are not afraid to reduce or suspend their dividend if that's what it takes to shore up their balance sheet.  That might sound like an easy or very sensible and obvious thing to do, but remember that some of the largest shareholders are managers or board members at GNG, and so reducing their dividend does affect them more than most.

Just while I'm on that, this current FY (FY19) is going to be a very quiet one by GNG's standards, so expect a smaller final dividend to be declared in August this year than the 5c they declared last August.  Based on their last two dividends (5c + 4c = 9c), their dividend yield is currently over 10% - plus franking, but that is historical, and FY18 was a much stronger year than FY19 is going to be, so keep that in mind when projecting that yield forward.

I still rate GNG as a definite "buy" below $1, and I was recently buying more at 90c (and they're 88c now), but that's not based just on the past dividend hostory, it's based also on the quality of the company's management, their excellent industry position and their track record of on-time and on-budget project delivery.

Despite that reduced free float that I've just mentioned, Spheria Asset Management have managed to build a 10.43% stake in GNG over the past couple of months, so they're now the third largest shareholders in GNG (after Citicorp and CBA).

On their website, Spheria describe themselves like this:

"Spheria Asset Management is a fundamental-based investment manager with a bottom-up focus specialising in small and microcap companies. Our mission is to achieve strong investment returns for our clients with an emphasis on risk management. Keeping an open mind to potential investments is critical to our process and expanding our horizons to consider global influences gives us a powerful edge."

Disclosure:  Obviously, I hold GNG shares.  They're a very solid company that won't go broke (because they never carry net debt) and pay an excellent dividend.  They're good to buy near the lows (like now) and to trim when the valuation looks a bit stretched (up towards $2).

05-November-2019:  EPC Contract - Carosue Dam Operations Plant Expansion

21-Apr-19:  GR Engineering Services (GRES, ASX:GNG) are a core position of mine.  I don't hold them in my SMSF, but that's only because they have never been in the S&P/ASX300 index (or above), which is one of the prerequisites of CBUS Self-Managed Super for direct investments.  I hold them in my main trading portfolio instead, but I always own a core holding there, and I trade around that, so buying more when they look cheap (as they do now - down around $1/share) and selling down (trimming my position) when the GNG SP looks like it might have gotten ahead of itself.

Business Model/Strategy:  GRES is an engineering contractor who specialises in gold processing plants, but also do other precious metals, base metals and mineral sands.  They tend to leave the coal and iron ore projects to others.  GRES are usually involved in numerous studies at any given time (PFSs=Pre-Feasibility Studies, DFSs=Definitive Feasibility Studies, BFSs=Bankable FSs, etc.), many of which lead straight into EPC (Engineer, Procure, Construct) or EPCM contracts (the "M" means they also manage the entire construction project) - where those FSs show the projects to be robust and commercially viable (and the project's owners can secure the capital to proceed to the construction phase).

As contractors, their revenue and profits are inherently lumpy, as their clients rely on favourable commodity prices as well as a favourable business environment (the ability to raise money to build mines and processing plants) and the ducks don't always line up for them.

That's one risk.  Another is that they're a small company.  Based on their current $1.02 SP, their market capitalisation is less than $160m, so liquidity can also be a problem (there are not always many buyers and sellers for GNG shares, and the gaps between the bids and offers can be substantial at various times).  That can be an opportunity for a patient buyer, but a substantial headache for an impatient seller.

The third risk is that many of their clients are small, and only beginning their journey, and not all of them navigate their way through to profitability as well as others, which results in some of GRES's clients occasionally not paying their bills, meaning GRES occasionally report write-offs associated with non-payment of money owing to GRES by certain clients.  This recently occurred with Eastern Goldfields (ASX:EGS) who are now in Administration.  GRES had performed some refurbishment work at EGS's Daveyhurst Gold Plant (located in the eastern goldfields region of WA), and GRES will never be paid for much of that work.  This comes with the territory and GRES have been successfully navigating through such landmines for many years now.  They do get a few that blow up on them like that sometimes, but it never mortally wounds them, due to their superb risk management.  Their profitability is high enough that they can absorb such losses, as long as they don't get too many of them around the same time.

Plenty of risks there.  So - why own them?

Well, they have some significant positives.  One is that their founders still run the company and are substantial shareholders in it.  Another is that they really dislike debt, and avoid it wherever possible, always maintaining a net cash position.  They also don't have capital raisings.  They fund their operations from their own profits and cashflow, and that includes gearing up for new substantial projects.  They pay above-market dividends.  I've owned shares in GNG for a number of years and during that time they've never asked me for money (no SPPs or rights issues), have paid a dividend in every 6 month period except 1 (and their dividend yield has always been impressive), and they have reported a net cash position (no net debt) in every single report during that time.

They also have a strong record of sensible capital allocation, including M&A activity.  They have only aquired one company in the years I have been a shareholder, to diversify into the energy sector.  They acquired "Upstream Production Solutions" (Upstream PS), which has provided them with some much-needed recurring revenue.  The nature of their main contracting business is that it is based on a number of one-off studies and one-off engineering and construction projects.  Upstream PS is based around multi-year operations and maintenance (O&M) contracts for assets owned by large energy players such as Origin Energy and APLNG as well as some of the smaller players, and provides recurring revenue.

In summary, despite the risks, which I do acknowledge, they are very well run, their board and management have significant skin in the game (so their interests are aligned with mine), they provide me with a good income stream, they always maintain a net cash buffer (no net debt at all), their risk management has been superb to date, and they are very good at what they do, and the industry knows it, and they now have some diversified revenue, including some recurring revenue streams.

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.