The Mastermyne Group Limited (ASX: MYE) share price is on the rise during late afternoon trade. This comes after the mining services company announced a significant contract award.
At the time of writing, Mastermyne shares are swapping hands for 83 cents, up 6.41%.
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Details of the deal
In a statement to the ASX, Mastermind advised is has been selected for the Gregory Crinum Underground Whole of Mine Contract by Sojitz Blue Pty Ltd.
The award strengthens the relationship between the pair, in which Mastermyne was previously tasked to undertake a number of works. This included a feasibility study focusing on the development of a high productivity bord and pillar mining operation. In addition, Mastermyne also engaged as the Mine Operator to run through the re-entry process, with completion in October 2020.
The new project award is divided into two sections, the re-establishment process, followed by the mining production phase.
During the initial phase, the re-establishment process will see infrastructure works built into the underground mine. Expected to take 6 months to complete, the project involves conveyor systems, ventilation, mine services, remediation works and surface infrastructure.
Once the re-establishment process is finalised, the mine will immediately transition into production. The underground mine is estimated to produce roughly 11 million tonnes ROM (run of mine) over the project life. Mastermyne projects mining production to occur sometime later this year.
The contract term is valid for 7 years and 6 months, and is assumed to generate revenue of between $600 million and $660 million. On average, this equates to $80 million to $100 million in revenue per annum once in full production.
Initial funding for the project will be combined, with Mastermyne drawing on its strong existing cash reserves. The overhaul of the mining fleet and ancillary mining equipment will also be primarily funded by the company.
Management commentary
Mastermyne CEO, Tony Caruso welcomed the new deal, saying:
The execution of our first Whole of Mine Operations contract is a major milestone for Mastermyne and is significant in transitioning the business into a commercial model that is not only complimentary to the existing contracting model but will provide an even greater level of earnings certainty over the long term. Through the detailed feasibility work and contract negotiations the team has put together a balanced contract structure that minimises downside risk whilst at the same time rewards the business (through stronger margins) for better production performance.
Sojitz CEO, Cameron Vorias went on to add:
We are delighted to have Mastermyne as our highly regarded partner for this development and it will support our strategic plans for the growth of high quality hard coking coal from the area.
Mastermyne share price snapshot
The last 12 months have been a rollercoaster ride for Mastermyne shareholders, with its shares moving in volatile directions. Most recently, the company's share price reached a 52-week low of 55 cents in March, before slightly rebounding.
Mastermyne has a market capitalisation of about $88 million, and over 106 million shares on its registry.
