re: Ann: Downer Signs Fortescue Christmas Cre... Downer shares...

re: Ann: Downer Signs Fortescue Christmas Cre... Downer shares jump on $3b Fortescue deal
PHILIP WEN
August 5, 2010 - 11:16AM

The embattled engineering services firm Downer EDI has won a six-year, $3 billion contract to provide mining services to Fortescues Christmas Creek project in the Pilbara region.

The deal was foreshadowed by Downer last week when it announced a $2 billion contract with BHP Billiton Mitsubishi Alliance to June 2015 in the Bowen Basin in Central Queensland.

Shares in Downer opened 21 cents, or 4.4 per cent, higher at $4.96 this morning, before easing to $4.90 in early morning trade.

Newly-installed Downer chief executive Grant Fenn said the Fortescue contract was one of the largest mining services contracts of its type in Australia and would generate more than 650 jobs. Preliminary works will begin shortly, with first ore expected to be extracted in November.

Downer said the Fortescue contract will require capital expenditure of $235 million over a three-year period, on top of about $190 million in first-year expenditure on the BHP project.

Cost blow-outs on Downers Waratah Trains and persistent concerns over a funding shortfall relating to its Reliance Rail contract has had several analysts tipping a potential $300 million equity raising.

But Mr Fenn reiterated that Downer had no current intention of raising equity, and that the capital expenditure on the new projects will be funded primarily through operating cash-flow and new finance and operating leases.

Downer has ample funding capacity for the Fortescue Christmas Creek contract announced today and the BHP Billiton Mitsubishi Alliance contracts ... announced [last week], Mr Fenn said.

We will remain well inside our target leverage range of 25 to 35 per cent and Downer has no current intention of raising equity.

Mr Fenn is Downers third chief executive in as many years after taking over from Geoff Knox on Monday, as the company aims to restore credibility over its handling of the biggest rail contract in New South Wales.

Fortescue expects new output from the Christmas Creek project to increase total iron ore production to 55 million tonnes a year by the June quarter of 2011, from around 40 million tonnes a year currently.

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