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Monadelphous share price on watch after $60 million Rio Tinto contract

Engineering company Monadelphous Group Limited (ASX: MND)  share price is on watch after signing a new contract with Rio Tinto Ltd (ASX: RIO) in Western Australia.

What did Monadelphous announce this morning?

Monadelphous announced it had been awarded a contract for the provision of services to Rio Tinto on its privately-owned rail network in the Pilbara region of Western Australia.

Monadelphous said that its Maintenance and Industrial Services division will provide maintenance services across three packages of work under a three-year contract, with a further two three-year extension options.

Monadelphous said that the contract, valued at approximately $60 million, would strengthen the company’s position in the rail sector.

According to the release, the scope of work includes general track maintenance and renewals services on the coastal component of the rail network, resurfacing services across Rio Tinto’s entire rail network and rail workshop services.

Monadelphous Managing Director, Rob Velletri, said the contract built on the company’s long-term relationship with Rio Tinto in the delivery of construction and maintenance services, and further broadened Monadelphous’ service offering.

“The contract is a significant strategic milestone for our business,” Mr Velletri said. “This work will also provide us with the opportunity to strengthen and build on our existing capabilities in the rail sector.”

Monadelphous currently undertakes rail work across the Pilbara region including mechanical repair, abrasive blasting, cleaning and relining of carbon steel ore wagons and the provision of commissioning services for new ore wagons.

Monadelphous continues to win contracts

Monadelphous has enjoyed a strong operational start to the year with several big contracts announced in the Energy and Resources sectors.

Just last week, Monadelphous announced it was awarded a contract with Origin Energy Ltd (ASX: ORG) for the construction of the Talinga Orana Gas Gathering Station, located near Chinchilla, Queensland.

The contract – which includes fabrication, pre-assembly and site construction of two gas compression trains and supporting utilities and infrastructure – is expected to be completed by March 2020.

In Western Australia, Monadelphous said it has been awarded a new 3-year contract for the supply of shutdown and mechanical services at the South32 Ltd (ASX: S32) Worsley Alumina Refinery.

Foolish takeaway

The Monadelphous share price has climbed 27% higher so far this year and these contracts look set to fuel capital gains in the second half of the year.

The Monadelphous share price is currently trading at $17.06 per share with a market cap of $1.64 billion.

With a price-to-earnings (P/E) ratio of 22x earnings, I think Monadelphous could be in the buy zone for the right portfolio looking for broader exposure to engineering and construction services.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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 Scott Phillips.