The Perenti Global Ltd (ASX: PRN) share price is starting the week on a very disappointing note.
The mining services company's shares are down a sizeable 16% to $1.75 at the time of writing.
This makes them the worst performers on the benchmark S&P/ASX 200 index ahead of the Smartgroup Corporation Ltd (ASX: SIQ) share price. The salary packaging and fleet management company's shares are down 15% this morning.
Why is the Perenti share price sinking lower?
This morning Perenti, previously known as Ausdrill, advised that Ghana Manganese Company has terminated an equipment hire contract with its African Mining Services business at the Nsuta manganese mine in Ghana.
This follows the temporary suspension of the contract that was announced at the start of the month.
Management has stressed that the termination is not performance related. It is actually due to the Ghanaian government directing Ghana Manganese Company to cap its production at the mine.
What impact will this have?
Combined with recent developments at Boungou and Bissa, Perenti expects its underlying net profit after tax (NPAT) in FY 2020 to be impacted materially.
As a result, it has downgraded its underlying NPAT guidance from $140 million to between $115 million and $120 million.
Management advised that the equipment currently deployed at Nsuta will be utilised at existing projects, held for deployment to existing and new projects in the future to offset new capital, or sold to third parties generating a cash inflow to the business.
Perenti's managing director, Mark Norwell, said: "The termination at Nsuta and its earnings impact is disappointing. However, it is an isolated incident driven by circumstances specific to GMC. I stress that the termination in no way reflects AMS' performance at the project, and the termination notice specifically thanked AMS for its 'outstanding services'"
"Additionally, the termination frees up capital that AMS can utilise to service new contract wins and extensions we announced earlier this month. Although our surface mining business in Africa is facing some challenges, the balance of the business continues to perform well and provides a strong base from which to execute our strategy. We are continuing to focus on the transformation of AMS as we have previously communicated to the market," he added.
