29-Aug-2022: As expected, Thiess have increased their offer for MACA.
MACA-Revised-Recommended-Takeover-Offer-from-Thiess.PDF
Thiess have today announced that they have increased their offer price for MACA (MLD) to $1.075/share (instead of the earlier $1.025, so they've gone 5c higher) and all MACA shareholders who accept their offer - or had already accepted their previous offer - will receive the higher amount of $1.075/share. This is because NRW Holdings (NWH) made their own offer to the MACA Board public 11 days ago (on August 18th) and they (NWH) were prepared to pay $1.085/share for MACA as either (a) all scrip (NWH shares), (b) all cash, or (c) 50% shares & 50% cash, and each shareholder could choose how they wanted to receive payment from NRW for their MACA shares. See here: NWH-NRW-confirms-MACA-(MLD)-approach.PDF
On the 19th (the following day), MACA responded with this: MACA-response-to-NRW-Indicative-Proposal.PDF
MACA rejected the NRW Holdings (NWH) offer because (a) they said it wasn't superior to the Thiess offer because the NRW offer involved NRW (NWH) shares (they conveniently ignored the 100% cash option offered by NRW), and (b) they were concerned that NRW's offer was conditional on NRW doing DD (due diligence) and they weren't keen on opening up their books to NRW as they view them as a direct competitor (makes me wonder how they must have viewed Thiess if not as a direct competitor).
It's interesting that Thiess have raised their own offer to one cent LESS than NRW's indicative (and conditional) $1.085/share offer for MACA. I'm thinking it is to appease unhappy shareholders who would have been pressuring the MACA Board to give further consideration to the NRW offer because it was 6c/share higher than the original Thiess offer. Now that the difference is just 1c/share it might not be worth the fight, particularly as Geoff Baker and the other MACA founding shareholders and Directors have all now signed contracts with Thiess to sell their shares to Thiess and those contracts all include clauses that prohibit them from changing their minds while the Thiess offer remains open, so they can't retract their acceptance even if a higher comes in, no matter how high that offer is, or who it is from.
So Thiess have locked it up. They now speak for over 15% of MACA (as of today's disclosure) and so they therefore now have enough to block anyone else who tries to takeover MACA regardless of how much they are prepared to pay.
NRW would therefore be wasting their time pursuing this any further. They have, after all, got MACA shareholder an extra 5c/share without having to do much themselves except to say they were willing to pay more for MACA than Thiess were.
Interesting that on a pretty "DOWN" day for the market, as shown here:
...where the market (as represented by the ASX200) was down just shy of -2% (the All Ords Index was down by just over -2%)... MACA closed up 2c (or +1.89%) at $1.08. That's half a cent ABOVE the new Thiess offer. What's the plan? Where's the higher bid going to come from now? I don't get it to be honest. It looks to me like Thiess has this locked up now at $1.075/share and they've now got the MACA Board and founding shareholders in a position where they can not and will not recommend any other offer than the Thiess offer, and Theiss have that in writing, and it's legally enforceable, so any other M&A concerning MACA is just going to be a waste of time and money for a potential third party (including NRW Holdings).
Unless I'm missing something...?
28-July-2022 - MACA (MLD) got a takeover offer from Thiess and reported it to the market on Tuesday 26th July (two days ago). I wrote about my thoughts on the offer (as a MACA shareholder) in a straw I typed up on the Genex Power (GNX) takeover offer - see here: https://strawman.com/reports/GNX/Bear77?view-straw=18990
That should take you to my valuation on GNX, so scroll down past that valuation and the Genex takeover straw should be below it, with the commentary on the MACA takeover in it.
Here's a report on the offer from Australian Mining magazine: https://www.australianmining.com.au/news/thiess-poised-to-take-over-maca/
The main points are:
- that the MACA Board is fully behind this and have recommended that shareholders accept the offer;
- that there are very few conditions to this offer, so very little chance it will fall over;
- that it is a cash offer, so you won't get shares in another company, just cash;
- while a higher offer from another company is possible, I would consider it unlikely as while MACA do have some good clients and good contracts, their metrics have been going backwards for a few years and they haven't been run well, they do have debt, and their margins are very small;
- that the $1.025 offer price will be reduced by the value of any dividend declared by MACA;
- that I consider it likely that MACA will declare a dividend, and that it will probably be 2.5c/share once again meaning that it will come with around 1c worth of franking credits, and if that happens the $1.025 offer price will reduce to $1.00 however shareholders who hold on will also get the 2.5c/share dividend and the approximately 1c/share of franking credits - Note: this is supposition on my part and there are no guarantees that MACA WILL declare a final dividend OR that it will be 2.5c, that is just my current expectation;
- that MACA have traded as high as $1/share Wednesday, but closed at 99cps, same as Tuesday, the day the offer was announced to the market;
- that MACA's latest CEO (David Greig, an internal appointment) only started last week (22nd July), after Mike Sutton retired, and Mike had only been with MACA since they bought Downer's Mining West business last year, which Mike used to manage for Downer. Previously Chris Tuckwell had been the CEO and MD of MACA, then left in 2018 to work for their competitor Ausdrill as their COO, Africa, then after 2 years in that role he returned to MACA in 2020 to take over the CEO and MD roles once again, replacing Linton Kirk. Then he left again and was replaced by Mike Sutton, and now David Greig, so there hasn't exactly been stability at the top at MACA;
- that I consider this a fair offer considering the declining quality of MACA as a mining services company over recent years and that their high dividend yield was starting to look unsustainable if things kept heading south; and
- that I will probably hold on and see what dividend they declare when they report in August, but I may also change my mind and sell earlier, particularly if they trade above $1/share.
In terms of their metrics, MACA have gone from net cash to net debt, their ROE and margins have reduced significantly, and while they are earning more revenue (as they are now substantially bigger due to recent acquisitions), they are earning less profit on that revenue. The problem with low margin work is that if your costs blow out, you can make losses, as MACA recently did with their Interquip division (60% owned by MACA) making losses on a fixed-price EPC contract to deliver a gold processing plant for RED (Red 5) at their KOTH (King Of The Hills) gold project.
MLD-Operational-and-Market-Update.PDF
"MACA’s Mining and Civil segments, which together represent over 90% of MACA’s annual revenue, continue to perform in line with expectations. As indicated at the half year, margins in these segments have seen modest improvement in the first three months of this half, although this improvement has been capped by the increased COVID-19 case numbers in Western Australia in March and April 2022 and the impacts of these on our business and workforce. These improvements however have been offset by a single underperforming contract in the MACA Interquip business (which is 60% owned by MACA). MACA Interquip’s EPC fixed price contract to deliver the King of the Hills process plant has experienced cost overruns. This has primarily been due to the highly constrained construction labour market in the WA resources sector. Despite these challenges, the King of the Hills process plant remains on track to achieve Red 5’s targeted commissioning in the current June Quarter 2022."
Further Reading:
Ausdrill African COO Tuckwell Resigns to Return to MACA Ltd | Mining Digital
The MACA mining crew at Regis Resources' Moolart Well gold mine doing their pre-shift warm-up stretches which many companies have introduced to help prevent workplace injuries.
MACA (MLD, which I hold shares in) has been out of favour since tagging $1.49/share in January. Since they bought Downer's (DOW's) Mining West business, which predominantly serviced the WA iron ore market, MACA's clients are now mostly split between iron ore and gold (with "gold" including pure gold as well as gold/copper) miners. We now have a situation where gold is rising but iron ore is falling. And the market doesn't seem to know what to do with a company like MLD. Their SP has been trading in a range between 65 cps and 93 cps since around mid-May, so for just over 6 months, and they can't seem to break out of that range, always returning to a mid-point of around 80 cps. Which is where they closed at yesterday ($0.80/share).
I hold MLD in two of my RL portfolios and here on SM as well, and I'm not worried about them. They have new management now, with the CEO coming across from Downer's (DOW's) mining business, along with the Mining West acquisition, and I view them as a turnaround, after a few dissapointing years during which they had blew a lot of money in Brazil (they've now closed down their Brazillian operations entirely) and their ROE (profitability) went from being good to being very mediocre. One positive is that they continue to pay a decent fully franked dividend, having paid out 2.5 cps each half for the past 5 halves, so 5 cps pa, or a trailing 6.25% yield based on their $0.80/share SP. Plus franking, and all of their dividends have always been fully franked. For that reason, they remain one of the largest positions within my RL income fund (along with other excellent dividend payers like GNG and LYL). I think MLD were overearning in prior years, and then they went completely the other way due to a combination of poor capital allocation decision made by their previous management, and some bad luck thrown in (clients hitting seriously difficulties and not paying their bills on time). I believe they've now steadied their ship and the future looks better than the recent past for MACA. They're certainly not my favourite mining services company, but they're a buy at current levels in my opinion. I don't see a lot of downside from here and plenty of upside if they can continue to execute well on this turnaround. And there's plenty of dividends to be enjoyed while I wait.
Companies like this get sold off usually when the price of a commodity that they're exposed to tumbles (like iron ore has been lately). However, MACA get paid by the tonne, to dig the stuff up, move it and crush the ore, and the price that their customers ultimately receive for the finished product doesn't have much of an impact on that revenue that MACA receive for their mining, hauling and crushing work. If anything, iron ore miners only tend to try to process MORE iron ore when prices fall to make up their revenue with higher volume, despite the lower margins - for the miner. The mining services company (MACA in this case) already has their own rates locked in, so lower iron ore prices only bite in terms of their being less new mines being planned and built possibly, or less new work available to bid on. However, these iron ore cycles are often quite short. In that article above they're talking about iron ore prices being back to levels last seen in May last year. Companies like RIO, BHP and FMG are looking forward more than a year or three. It often takes years to get these major new iron ore mines up and running anyway. You don't make those types of decisions based on daily, monthly or even annual commodity price movements. You make those calls based on your view of the longer term drivers of demand for that commodity, and the demand won't always be all from China (or lack of demand currently). India is going to need a lot of steel also as they develop infrastructure and urbanise in a similar way to what China has been doing for quite a few years now. While iron ore miners may well have to accept lower prices for a period until demand picks up again, they're all still going to need their ore dug up, hauled and crushed, and that's what MACA does. And they also work in gold, and gold/copper, where they have at least as many clients as they do in iron ore, and gold is heading up, not down at this point.
Apart from the 77% of their FY21 revenue derived from gold and iron ore miners, MACA also work for nickel and lithium miners, as well as governments (mostly on road construction and maintenance).
Most of their work is centred in WA:
However they also have some work in Victoria (for VicRoads) and MACA also own a small coal mining project in Queensland (formerly owned by Carabella Resources) called the Bluff PCI Coal project, which MACA has recently agreed to sell to Bowen Coking Coal (for A$5m in either cash or Bowen shares plus quarterly price-linked royalty payments for coal sales from the mine). See here: Bowen Coking Coal to acquire Australian coal mine from MACA (mining-technology.com)
All in all, I'm happy with MACA's recent progress (the turnaround):
Disclosure: I hold MLD shares.
Further reading: Reports & Investor Briefings | Investor Centre & ASX Information | MACA
29-Aug-2021: I currently hold MACA (MLD) in two of my real life portfolios and they are also in my Strawman.com portfolio. MLD were trading at 84 cps (cents per share) before they reported their FY21 results on 23-Aug-2021; they were up a little on the day, but closed Friday (27-Aug-2021) at 84 cps again, so no change since their report, which is indicative of the fact that there were no real surprises in their report - they basically met the market's low expectations.
However, their report and their declared dividend (of 2.5cps, same as their last 4 dividends) suggest to me that they have reached their low point and their share price is more likely to rise from here than to fall. At 84 cps, their dividend yield (of 5c/year) is 5.9%, plus franking, and their dividends are fully franked. That is a good dividend yield, and that alone should support the share price at current levels. A few more contract wins should push the share price up to higher levels, or even if the mining services sector just gets positive re-rated by the market on the back of various reports this month which suggest that things are not as bad as people were thinking they were. The main concern is cost blowouts on projects/contracts and other headwinds caused by a tight labour market (lack of skilled operators) and associated wage/salary inflation, particularly in WA (where MACA are based).
Things to note about MACA are:
- They have a new guy, Mike Sutton, running the company, who is ex-Downer (DOW), however he used to run Downer's mining services division (which was called Downer EDI Mining), so he knows the industry very well;
- They are now doing almost as much work in iron ore (crushing and mining and hauling) as they are in gold, since a number of iron ore clients came over to them with their fairly recent acquisition of Downer's Mining West business, therefore if the iron ore price falls substantially, that might now affect the market's sentiment towards MACA; The price of gold also has an effect clearly on how people view MACA's future prospects, because MACA has ALWAYS been very active in mining services to the gold mining industry; and
- Another thing to note is that MACA were HIGHLY profitable a few years ago, but their disastrous foray into Brazil plus a few other missteps (mistakes) have really reduced their ROE and earnings per share (EPS). Their numbers suggest they went from highly profitable around 5 years ago to unprofitable in FY20, to barely profitable in FY21. My own view is that things have likely bottomed now - as in they will likely get better from here, but there are obviously no guarantees. I could be wrong.
While their results for FY21 were WAY better than they were in FY20, when you compare FY21 to FY19, they have more debt now, plus a lower net profit margin, a lower EBIT margin, and lower EPS (earnings per share) than they did 2 years ago. I want to see all of those numbers improve in FY22.
Their FY21 Results Presentation has plenty of positive spin in it, as they always do, however realistically I think they are well positioned within their industry to benefit from a booming iron ore sector and great margins for the majority of gold miners. I think that while they have certainly made mistakes in the past, they have a new CEO/MD now, and they should do well from here and continue to pay a great dividend yield.
In mining services, and specifically companies who do the actual contract mining for miners, I like Macmahon (MAH) better than MACA (MLD), and I like NRW Holdings (NWH) better than both MAH and MLD, but I hold all three at this point.
In summary, while MACA (MLD) is not my favourite mining services company, I still think they look cheap here, and they are worth holding for both their high dividends and for a positive market re-rating which should see their share price back over $1/share at some point. When that happens, I will likely either reduce my exposure to MLD or else sell out entirely if their SP rises high enough, however that obviously depends on what their business and the industries they work in look like at that point.
24-July-2021: I have posted a straw here about MACA's competitor Macmahon (MAH) and their order book, so I figured it best if I also include some details of MACA's (MLD's) order book - see slide below - click on it to enlarge it. It was page 5 of a recent presentation given my MACA on 09-March-2021 at the Euroz Hartleys Institutional Investor Conference, which is usually held on Rottnest Island off the Perth coast (in WA) every year, but I suspect was a virtual event this year. You can access that full presentation here.
You can also access all of their Annual Reports here: https://www.maca.net.au/investor-centre/reports-and-investor-briefings/
Disclosure: I do hold MLD shares.
03-Mar-2021: St Barbara appoints Macmahon as new underground mining contractor at Gwalia
SBM have appointed MAH as their new underground mining contractor at their flagship Gwalia mine in WA, replacing Byrnecut, a private company who has been providing that service for many years. In their report last week (Tues 23-Feb-2021), Macmahon talked about their huge tender pipeline, and it is reasonable to expect them to win a fair percentage of those tenders, particularly with gold miners (like SBM), as Macmahon are now the leading listed gold mining contractor in Australia, both for underground (UG) and open pit (OP) mining. I hold SBM and MAH shares.
MACA (MLD) is the other ASX-listed contract miner who also specialises in the gold mining industry, and both MAH & MLD have the majority of their revenue coming from Australian ASX-listed gold miners. NRW Holdings (NWH) are also active in the sector, but the majority of NWH's contract mining clients are actually iron ore miners now, not gold miners. MLD are close to a 50/50 split between gold and iron ore, but I believe the majority of their revenue still comes from gold, and MAH are clearly working mostly for gold and copper/gold miners.
24-July-2021: I have just updated that last paragraph to reflect that NRW Holdings is no longer exposed as much to the gold industry as they used to be, and I should also comment that I reckon I posted this straw under MLD in error back in March - it should have been under MAH, not MLD, but since MAH are MLD's main competitor, I'll just update the straw and change the title to "Industry Competitors".
Disclosure: I currently hold shares in MLD, MAH and NWH.
22-Feb-2021: Half Year Results Presentation plus Half Yearly Report and Accounts
I have held MLD shares in the past, although I do not currently hold them. They are one of my favourite mining services companies. I currently prefer MAH & NWH to MLD, but MLD are still a very good company.
