Ann: Consolidation of Mining Services Contracts, page-8

West australian extract details expected cost savings

Fmg / downer
The mining company has consolidated two contracts at its two Christmas Creek mines into one, awarding the $650 million job to Macmahon rival Downer EDI.





The contract had been Macmahon's biggest and was scheduled to run for another three years.





The move will leave the contractor's estimated 700 workers at the project in limbo.





While Downer is expected to move many of the workers over to its own operations, it is likely some roles will go, particularly in maintenance and other support roles.





The company slashed its annual revenue forecast to between $600 million and $700 million. It plans to hold talks with lenders to discuss the loss of income and renegotiate its banking facility if required.





Executive chairman Jim Walker said Macmahon would quickly restructure its business model to cope with the loss.





"We have already begun the process of resizing the business, including consolidating our Perth offices and reducing overheads," Jim Walker said.





"While the business will be smaller over the near term, the company still has several quality contracts under way and is pursuing potential opportunities both here in Australia and overseas," he said.





Mr Walker took over from former managing director Ross Carroll last month.





Macmahon has flagged impairments of between $125 million and $135 million when it reports first-half results on Monday.





In January, it was also beaten by Downer for a $2 billion Queensland coal mining contract.





Downer had been the other mining contractor at Christmas Creek. The consolidated contract runs until September 2016.





It is understood Fortescue expects to save as much as $US15 million ($19 million) a month, or up to $US270 million over the remaining life of the contract.





Fortescue produces about 59 million tonnes of ore a year at the mine, according to analysts, meaning the company can expect to cut about $US3.30 a tonne from production costs.





Analysts put combined cash production costs at Fortescue's Chichester hub, which includes Christmas Creek and the nearby Cloudbreak mine, at about $US30.60/t.





'The company still has several quality contracts under way.' " Macmahon executive chairman *Jim Walker *