MENU

Forge Group loses $290 million contract

Engineer and construction group Forge Group (ASX: FGE) last week notified shareholders of the loss of a $290 million contract with Chinese-controlled miner MMG. MMG terminated the engineering, procurement and construction contract for a zinc-lead-silver processor at Dugald River, located near Mt Isa in northwest Queensland.

Forge said the cancellation would have minimal impact on the company’s earnings and revenue in 2013 and 2014 as the majority of work was due to occur in 2015. In a company statement, managing director David Simpson said, “Whilst this decision is regrettable, Forge Group has been very successful in strengthening its work in hand with almost $1.6 billion worth of new projects awarded in the last month”.

So far this financial year Forge has been awarded two sizeable contracts, a $100 million project with Rio Tinto’s (ASX: RIO) Yandi Sustaining Project in Newman, Western Australia, and $800 million of a $1.47 billion project with the Roy Hill iron ore mine also in Western Australia.

Before this setback, Forge had an order book in excess of $2.2 billion, indicating that the order book now sites at around $1.9 billion.

Forge was one of only a handful of mining services companies to announce strong rises in profit and revenue in 2012-2013, reporting a 36% rise in earnings to $1.1 billion, and a 28% rise in profit to $62.9 million. The company had a strong cash position at the end of the 2013, with over $103 million held to be used to pursue growth opportunities.

Foolish takeaway

Forge’s strong reputation in the mining industry is ensuring that the company continues to be awarded small to medium sized contracts, however the slowdown mining capital expenditure will no doubt affect it from time to time. Assuming Forge maintains its current contracts and executes them successfully, it is well placed to outperform its peers and register solid share price growth in the coming year.

Not interested in Forge? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading


Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!