Aveng's share price surges as Moolmans sale talks progress

Aveng’s share price shot up over 7% on the JSE after it announced it is in talks to sell its South African asset, the Moolmans contract mining company, as its strategy to create two independent businesses progresses.

CEO Scott Cummins said Tuesday that although the talks to sell Moolmans were fairly advanced, he was not yet in a position to disclose when it might be finalised. Aveng’s other operating brands, MacConnell Dowell, which does infrastructure and construction, operates in Australia, New Zealand & Pacific Islands and Southeast Asia, while the building segment, branded Built Environs, operates in New Zealand and the states of Victoria.

Aveng's share price traded at R5.15 on the JSE on Tuesday morning, this after drifting from R10 a share a year ago.

Cummins said in an interview with Business Report they were still assessing the best options for the future of MacConnell Dowell, such as whether it should be sold or operated on a standalone basis, whether it should delist from the JSE or list also in Australia, and they might be ready to present the best option to the board in the first half of the next financial year.

He said the final price for Moolmans would likely include a consideration to take into account the contract dispute at Tshipi mine, which had gone to a formal dispute resolution process.

At Tshipi, production was being hampered by restrictive mining conditions due to the mine planning. The project suffered from a “non-collaborative work and operating environment.” The restrictive mining claims, together with other claims relating to regression, power failures, and weather, exceeded R300m, but the group was confident in its claims, according to Cummins.

He was particularly happy with the level of new work the group had received, as work-on-hand had increased marginally to R37.5bn from R37.2bn by June 30, but in less than six weeks post financial year end, another approximate R10.4bn of new work had been secured.

Another reason why he was confident was that their earlier strategy to diversify into other sectors such as renewable energy and coastal and marine, in light of lower spending on transport by the Australian government, was starting to bear fruit. There was growing demand from infrastructure projects in the Asia Pacific that favoured the group in light of geopolitical changes in the region.

Meanwhile, Aveng’s operating loss widened to R693m from R424m for the year, amid the expected softening in infrastructure markets in Australia and New Zealand and lower profit from Moolmans.

The headline loss per share widened to 744 cents from 364 cents last year. Cash on hand increased to R3.1bn from R2.8bn.

Overall revenue fell to R31bn from R37.5bn in line with previous guidance. Included in the operating earnings before capital items were losses of A$98.5m from the Jurong region Line (J108) in the Infrastructure South East Asia business unit, and Kidston Pumped Storage Hydro Project in the Australia Infrastructure business unit.

“Whilst additional forecast costs to complete have been recognised, the cash flow impact will largely materialise over the next 12 months as these projects move towards completion.”

The balance of the portfolio in the Infrastructure segment was profitable and cash generative. Operating earnings improved in the Building segment.

The Mining segment  aw steadily growing production performance and profitability on one project, offset by inefficiency and unresolved contractual matters negatively impacting performance on the other contract.

In February, the Mining segment concluded a new 60-month contract of R10.6bn at Gamsberg in South Africa, delivering greater volumes, increased revenue, and improved profitability. Work in hand in the Mining segment has increased to R13.4bn from R5.4bn.

However, the J108 project for the Land Transport Authority in Singapore experienced delays and disruptions, and while negotiations continued with the client. In addition, a provision was taken to address a warranty issue on a completed project. As a result, the Southeast Asia business unit would report a A$63m loss versus a A$6m loss last year.

The Australian business unit's revenue decreased by 24.2% in the year to A$1.5bn. At the Kidston Pumped Hydro project in Queensland, progress was hampered by severe flooding and a full demobilisation from the site. The site returned to full operating capacity some 10 weeks later.

Two other projects in Queensland were also impacted by the rainfall and flooding, leading to commercial claims and adjustments to protect profitability. 

Moolmans successfully negotiated a new 60-month contract at Gamsberg, valued at R10.6bn with Black Mountain Mining, a subsidiary of Vedanta. The project was on target to meet maximum contracted volumes in the coming months.

BUSINESS REPORT