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Why the Ausenco share price jumped today

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Ausenco Limited (ASX: AAX) saw its share price jump as high as 35.5 cents today, currently up 29% at 29 cents, after the mining services company announced new contract wins.

Ausenco’s APAC/Africa division is finalising a number of new contracts that are expected to deliver $45 million in revenues. That represents 80% of the revenues booked by the division in 2015 according to CEO Zimi Meka.

The company also says it has won a number of other contracts, including a $17 million project to upgrade a coal handling and preparation plant (CHPP) at a NSW coal facility. Ausenco also says it has been awarded a $15 million three-year contract to provide operations and maintenance services for the CHPP at the Isaac Plains coal mine in Queensland.

Ausenco is but one of the many ASX-listed mining services companies that has seen its share price hammered over the past few years, losing more than 90% of its value since March 2013 as the resources boom ended.

Worleyparsons Limited (ASX: WOR) share price has tumbled 82%, Lycopodium Limited (ASX: LYL) has seen its share price fall 79% while the Monadelphous Limited (ASX: MND) share price is down more than 70%.

Not only have these companies been affected by less available work, but competition for work on offer is fierce, resulting in lower margins and higher levels of risk.

As I’ve mentioned before, winning a contract means virtually nothing unless the contractor can make a profit from it, and the risks of that have risen substantially. I wouldn’t be touching Ausenco shares even at these prices.


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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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