The temporary voluntary suspension of iron ore miner Atlas Iron Limited (ASX: AGO) this morning has seen transport company McAleese Ltd's (ASX: MCS) shares smashed at lunchtime.
McAleese shares have dropped 15% to 17.5 cents, clearly with the future of Atlas Iron in doubt. McAleese generates substantial revenues from hauling iron ore by road for several of Atlas's mines, including Mt Webber, Abydos, Mt Dove, Pardoo and Wodgina, and Atlas was one of its key clients.
McAleese's Bulk Haulage division saw revenues of $265.2 million in the 2014 financial year, hauling 27 million tonnes of iron ore and gold ore. But the potential demise of Atlas means McAleese could be left with virtually no work from the company in future. In 2014, the company had won a 6 million tonnes per annum contract for Atlas's Mt Webber mine.
McAleese announced today that its Bulk Haulage division "… continues to undertake road haulage and support operations for Atlas Iron. McAleese Group has a strong and long-standing partnership with Atlas Iron and will continue to work constructively with the Pilbara-based miner as a priority to achieve sustainable solutions for both parties."
In other words, McAleese either has to cut its margins on Atlas contracts to the bone to help Atlas survive or lose them. The company may also be taking a risk that it might not get paid for some of the work it is performing – notwithstanding its relationship with Atlas.
Ouch…
It's just a string of disasters that have befallen the transport company. One of its Cootes fuel tankers was involved in a fatal crash in Sydney, and then 89 of its tankers were grounded, many over safety concerns.
Then subsidiary Cootes Transport subsequently lost its national transport contracts with Shell and the NSW contract with oil giant BP, most likely driven by the fatal incident. Its NSW contract with Caltex Australia Limited (ASX: CTX) also ended in March 2015 but was fairly small.
With net debt standing at $175.5 million compared to a market cap of just $48 million, to go with the company's Atlas issues and there's a huge amount of risk involved investing in McAleese currently.
