Shareholders in mining services company Forge Group Limited (ASX: FGE) may be wondering when their pain will end. They watched their shares plunge by 83% in a single day of trading late in November and just as they were showing signs of a recovery, management has once again disappointed. This led to a further 18% loss yesterday.
Shares closed at $4.18 each on November 1 last year, before entering into a nearly-four-week-trading halt. Emerging from the halt, shares plunged 83% as the company revealed the total extent of losses on two of its power station projects, which were to cause a profit writedown of $127 million as well as a $45 million cash outlay to complete both projects.
After hitting a low of 28.5c, shares rose rapidly to hit $1.96, at which point it was revealed that BlackRock, the world's largest money manager, had become a substantial shareholder in the group, which shed light on the recovery. Adding to the recovery was news that the company had been given the go ahead for more work at Gina Rinehart's Roy Hill iron ore mine, located in Western Australia.
After signs were starting to look a little more positive, Forge again entered into a trading halt on Friday, giving investors good reason to be nervous. The embattled mining and construction contractor announced another writedown, between $23 million and $28 million, at the West Angelas power station it is building for Rio Tinto Limited (ASX: RIO) in the Pilbara region. This saw shares fall 18% to close at $1.025, giving the company a market capitalisation of just $88 million.
While the writedown was nowhere near as big as the one announced in November, it has increased the likelihood of a future equity raising, while it has also sparked concerns that there could be problems at some of its other projects. It has raised questions regarding the company's management and governance and, although managing director David Simpson has stated that the problems have been isolated to the power stations and that this is the last of the bad news, it is unlikely to appease shareholder concerns.
Foolish takeaway
Unfortunately, management has lost the faith of investors and with strong headwinds facing the sector (new mining investments remain down), investors should certainly look elsewhere for opportunities.