Consensus community valuation
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...?
Scroll down - latest update is at the bottom.
25 July 2019: 12 month PT (of $1.17) is based on management, prior history, balance sheet, and potential. Higher risk, as they have exposure to smaller gold and other miners such as Blackham Resources (BLK) who have their own issues with grades and costs, plus MACA tend to take payment in the form of shares at times which means they end up owning bits of some of these companies (including 19.3% of BLK). Sometimes, this business model doesn't work out well, as we saw with MACA's failed foray into Brazillian Gold Mining via their mining contract (and financial support of) Beadell Resources (formerly BDR, now a wholly owned subsidiary of Great Panther Mining Ltd - TSX:GPR and NYSE:GPL). However, MACA now count BHP among their clients, so they're moving up the food-chain somewhat. I'll discuss MACA more in a straw. . . . . .
23-Jan-2020: Update. MACA made my PT in 4 months, but have fallen away since then. I have personally sold out (again) at higher levels, but I left them on my Strawman.com scorecard. I've had another look at them this evening. At 30-Jun-2019 their NTA (the value of their net tangible assets) was $1.195, so I've slightly raised my valuation (/price target) to $1.195. Despite announcing two days ago that they are closing down their Brazil office (this month) and finishing up early at the Oz-Minerals-(OZL)-owned Antas copper mine over there - by mutual agreement, as they did with the Beadell gold-mining contract in FY18 (also in Brazil), MACA are still guiding for $770 million of revenue for FY20 and EBITDA of between $104m and $110m. They have increased revenue now for the past 4 years in a row: For FY17, FY18 & FY19, MACA's Revenue has been ($m) 497.9, 562.6 and 665.7 respectively (with guidance of 770 for FY20) and their EBITDA has been ($m) 98.5, 76.6 and 70.7 (respectively for FY17, FY18 and FY19) with guidance for FY20 of at least 104. Their WIH (order book) doubled in FY19 to $2.1 billion at June 30th 2019, and is expected to be $2.3 billion by the end of this month (January 2020) despite the early termination of the Antas contract and the closure of their Brazil operations this month. Their dividends have been going backwards since 2014, but they were paying out way too much back then - partly to distribute franking credits which they had a lot of - with management and board members being decent shareholders there was a concerted effort to get those franking credits out to shareholders including via a couple of large special dividends in both 2013 (30c fully franked) and 2014 (25c fully franked) in addition to their ordinary dividends which were nothing to sneeze at either... Anyway, despite reducing their payout ratio, they are still on a trailing dividend yield of around 4.6% fully franked (meaning 4.6% PLUS franking credits), with their NTA well above their current share price, a massive order book (work in hand), improving profitability at last (they had reducing profitability for a number of years but look to have turned that around now), and low debt (gearing was 20% at 30-Jun-19 but should be lower now). For most of their history they have had zero net debt (and plenty of cash) and I would expect them to pay the debt down reasonably quickly and return to their usual status of having net cash. Chris Tuckwell, their MD & CEO owns 1,288,801 shares, and Geoff Baker, their Executive Director of Operations (and a founding shareholder) still owns 12,863,816 MLD shares. Once their chart stabilises (they stop skiing down that slope), I'll likely pile back in. I've done well out of MACA on a number of occasions (particularly in 2013 and 2014 with those massive spec. divs) and I reckon I will again.
24-July-2020: Update: I've been in and out of MLD (MACA), and I'm currently on the sidelines, but only because I see better upside in other names at this point. In the mining services area and particularly those companies that service gold miners (like MLD do), I prefer MAH & NWH at this point, so I hold those two. I like MLD also, but I think MAH & NWH have more near and mid-term upside. I am lowering my PT (price target) for MLD to 98 cents per share (cps) because I think the whole sector may remain unloved for a while yet. Decent company, but probably not one of the best opportunities in the sector at this point.
23-Jan-2021: Update: MACA's latest acquisition announcement is a positive I believe, and has increased my PT for MLD. The market certainly viewed it as positive, with the MACA (MLD) SP very briefly hitting $1.50 in early January after the announcement.
I am not currently holding MLD, but they remain on my watchlist. I prefer MAH and NWH at this point.
24-July-2021: Update: My previous $1.27/share price target (valuation) has been marked as stale once again, however, I'm comfortable with it. I do hold MACA (MLD) shares now, as I believed in May and June that the mining services sector in Australia had been oversold, and I wanted to up my exposure to the best players in the industry. I consider that the three best mining contractors - being those who actually undertake contract mining, hauling and crushing, as well as drilling and blasting (D&B) for miners - are NWH, MAH and MLD, probably in that order.
NRW Holdings (NWH) have the best management IMHO and are the biggest and most diversified of the three, as in they have diversified revenue streams, so they also do a lot of shorter term EPC work, particularly for iron ore miners, and they also do rail and road construction work outside of mining and energy, as well as their contract mining.
Macmahon (MAH) and MACA (MLD) have the most exposure to the Australian gold mining industry, with around half of MLD's clients being gold miners and the majority of MAH's clients being either gold miners or copper/gold miners. And I like the gold sector, and I'm overweight Australian gold miners, something that played out well for me for a few months in the middle of 2020, but has dragged down my overall performance in the latter part of 2020 and the first half of 2021 (so, FY21). The time to be buying gold miners though is not when they are flying but when they are beaten down, so I don't think this is the time to be bailing out. It's been a profitable commodity to be involved with from a miner's perspective in recent years, and the ones that MACA and Macmahon work for are, for the most part (i.e. most of them are) very profitable, and the multi-year recurring revenue contracts that MACA and Macmahon have with these profitable gold miners underpins their own profitability.
I've gone into a fair bit of detail on this topic in the "Gold as an Investment" forum here. See: https://strawman.com/forums/topic/4503
Anyway, I hold NWH, MAH and MLD, and in terms of conviction, I have the lowest conviction about MACA (MLD) because of their management, specifically their declining profitability over recent years, their mistakes with expanding into Brazil (which they have now fully exited from) and their new MD/CEO, who is ex-Downer EDI (DOW). But I think they're worth more than the sub-$1 level where they are now, and I did buy them in the 70's and 80's (cps) in recent months, so I'm up on them so far already, as they're now in the 90's. I think $1.27/share is still a realistic price target for MLD, on the back of a recovery in sentiment around the mining services sector and a good report next month (in August). I hold.
11-Feb-2022: Update: I'm still holding this one and looking forward to their H1 FY2022 report this month, and their dividend next month. MACA is my fourth favourite mining services company in terms of contract miners, meaning companies who do the actual mining, hauling and crushing on behalf of the owners of those mines. Mineral Resources (MIN), NRW Holdings (NWH) and Macmahon Holdings (MAH) are my favourite three.
In terms of mining services companies who specialise in contract mining for GOLD producers, there are only two, being Macmahon (MAH) and MACA (MLD), in that order. MACA is pretty evenly split between gold and iron ore in terms of commodities mined, whereas the majority of MAH's clients are gold or copper/gold miners. As a gold bug who is warming to iron ore on the back of a successful investment in FMG in recent months, I think MACA have some solid clients and are in very good shape, much better shape than their share price chart would suggest actually. They have a new CEO/MD, Mike Sutton, who is ex-Downer (DOW). Almost half of MACA's clients came to them when they bought the "Mining West" business off Downer last year when Downer were divesting all of their non-core assets, so as former head of that division of Downer, Mike knows those contracts very well.
From Commsec: Mr Michael Sutton has over 40 years of experience gained in various senior roles within the mining and civil contracting industries, having worked internationally with more than 20 years spent in Western Australia. Prior to joining MACA, Mr Sutton held the role of Chief Operating Officer at Downer EDI Mining for 10 years. Prior to that Mike held senior roles with Leighton Contractors and Henry Walker Eltin. He is a member of the MACA Risk Committee.
Seems OK so far. MACA did make some interesting moves in prior years, like raising capital to fund special dividends, ostensibly to release excess franking credits to their shareholders (as they were no use to the company), and there was high insider ownership at the time that would have driven those decisions. As a shareholder, I was happy to get the dividends, but not so happy to see MACA get themselves into quite a bit of debt in subsequent years - and then they took on more debt in FY21 to buy Downer's Mining West business.
The past 8 years have seen a major decline in earnings and profitability for MACA although we did see an uptick in FY21, despite the COVID-19 headwinds.
Click on the image above to make it larger - which works in most sections of Strawman.com, although not all - then click again to return to this "valuation".
The share count has doubled over those 8 years, the ROE has reduced from 24.5% in FY13 to 4.9% in FY21. And they went from a net cash position to net gearing of 46.5%. So what's to like? Probably just the dividends if you've been a long term holder, however they look good to me here. They showed some improvement in FY21 over FY20 - which wasn't too hard as FY20 was absolutely dismal for them. They have new management and Mike Sutton appears to be getting on with the job without too much fanfare - like, the quiet achiever type. I hope...
Their dividends have been reducing along with their earnings, but only up until 2019; since then MACA have maintained a 5cps p.a. dividend (2.5 cps every half):
And I believe that MACA will increase those dividends as things improve, as long as they've got their debt under control of course, i.e. as long as they are paying it down at a good clip.
I won't go into the history too much, but the short version is that past management intentionally targeted smaller mining companies where they believed they had better access to management and could develop lasting relationships and come to mutually acceptable arrangements when things went pear-shaped, as thing did for Regis a number of years ago when a 1-in-150-year flood filled up their Garden Well pit at Duketon with 4.7 million cubic metres of water over a 26 hour period. That event started with the nearby creek system overflowing the Garden Well pit bund and then eroding a 30 metre section of the bund, then the pit just filled up with water.
Before (above) and after (below):
This stopped mining for about 6 weeks during which MACA worked to remove the water and return the pit to a usable state. During that period that Regis (RRL) had no gold sales and therefore no income, MACA allowed Regis to defer all payments for MACA's work until after the gold mining resumed again. In this way, MACA allowed Regis to continue as a going concern, and MACA kept Regis as a client. MACA still do all of Regis' open-pit mining at all of their Duketon pits, and the Regis contract has long been MACA's largest mining contract.
But things didn't always work out like that. A number of companies got into trouble that MACA couldn't help them with, mostly with gold grades being lower than expected and mill issues resulting in lower recoveries than anticipated from their gold processing. Once MACA deliver the ore to the mill, their work is done, it's the gold company's job to process the ore and extract the gold.
The biggest hit to MACA was a gold company called Beadell Resources, which is no longer ASX-listed. What was left of them got taken over by a Canadian-based company called Great Panther. They had a single mine operation ("Tucano") in Brazil. MACA saw this contract as an opportunity to start up a Brazilian division (MACA International) and chase work over there, and they soon landed a second contract, this time with a copper miner ("Avanco") that was eventually taken over by OZ Minerals (ASX: OZL).
OK, I said this was the short version, so I'll cut to the chase - The Brazilian foray was a disaster for MACA. They had to purchase a LOT of equipment to tool up for those contracts, and we're talking excavators, loaders, haul trucks, service vehicles, fuel trucks, heaps of stuff, set up a Brazilian HQ, employ and train hundreds of workers, manage it all, and deal with unhappy clients who aren't finding the gold in the ore in the quantities that they were certain was there when they did their exploration drilling and control sampling. Eventually MACA and Beadell agreed to go their separate ways and this was at the time that OZL (OZ Minerals) bought Avanco, and MACA announced they were closing their Brazilian operations.
They had to sell all of their equipment and it seems they got a lot less for it than what they had paid. It wasn't worth the enormous cost of shipping it all back to Australia, so they just had to sell it for whatever they could get for it over there in Brazil.
For a few years MACA just concentrated on Australian mining services but in April 2020 they won the contract to do the mining at the Okvau Project in Cambodia for Emerald Resources (ASX: EMR), who I also hold shares in.
EMR is an interesting company - they are full of people who used to work for Regis Resources back in the day, before the current management team at Regis Resources. In other words, when that pit flooded, those Emerald Resources guys were at Regis and they worked with MACA to get Regis back to producing gold again. Those are the types of relationships in business that clearly last.
And where is all of this going? Well, in the past 5 years, I've noticed that this intentional targeting of smaller miners thing by MACA has become far less prominent, and they've been happy to take on contracts with Roy Hill, Rio Tinto and BHP Iron Ore. They've still been winning plenty of work with smaller miners as well, but they're not afraid to work for the big players now, which is a big positive in my view.
That is certainly something that Mike Sutton will continue, as his background with Downer Mining was predominantly iron ore mining, and he was always after the big mining contracts with the biggest miners, because that's where the big dollars are made, for the longest time.
It's getting late, I won't go on (any more). I regard MACA currently as a turnaround that is turning around, although I'd like to see their metrics improve with each report, starting with the H1 FY22 report this month. I think they've been oversold here, and if they report well, I expect them to get positively re-rated by the market, particularly when mining services as an industry isn't so much on the nose - it really isn't popular right now, which is probably why I'm even more attracted to the sector.
So it could take time, but I'd be happy to collect those juicy dividends and wait, as long as the investment thesis stays intact.
MACA: Mining and Civil Australia
29-Aug-2022: Update: See my "Takeover Offer now $1.075" straw for details. Thiess have just increased their initial $1.025/share offer for MACA to now $1.075/share (probably to appease angry shareholders who would have been wanting the MACA Board to recommend the $1.085 offer from NRW Holdings) and Thiess now control over 15% of MACA including having Geoff Baker and the other MACA founding shareholders as well as the MACA Board all agreeing (a) to sell their shares to Thiess for $1.075/share and (b) to not withdraw that acceptance of Thiess' offer as long as Thiess' offer remains open. Done and dusted then. Can't see how anyone else can get past Thiess' blocking stake now, so game over and Thiess win. At $1.075/share. I sold out last week at $1.06/share.
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.
