Perenti downgrade

MINING contractor Perenti has hit a speed bump on its 2025 roadmap in the form of “headwinds” that are forcing it to lower its expectations for the second half of 2020-21.

Keeping staff is proving a costly challenge for Perenti.

Keeping staff is proving a costly challenge for Perenti.

In February Perenti flagged that its second half revenue and margins would be in line with the first half in which it reported $1 billion in revenue, underlying earnings before interest, tax, depreciation and amortisation of $200.9 million at an EBITDA margin of 19.8%

On May 13 it told the Australian Securities Exchange it had revised that outlook and instead expected revenue and operating earnings for the second half of FY21 to be "softer when compared to the first half of FYH21".

COVID-19 impacts are largely to blame, along with a tightening Australian labour market and a strengthening Australian dollar. When it made its February outlook call it had factored in an Australian dollar buying US67c. The exchange rate at the moment is about US77c.

The Australian labour market tightened considerably in the third quarter too. Part of that was due to COVID-19 travel bans making it harder for companies to bring in overseas workers to fill roles. The demand for labour is also a factor of a very hot mining market, which could work in Perenti's favour too.

However, according to Perenti the higher labour demand is resulting in higher turnover and wage growth, which is affecting margins.

It said it was continuing to develop and deploy initiatives aimed at maintaining a high-quality team.

COVID-19 challenges have created logistical complexities for Perenti's international operations.

The direct cost of travel management and quarantining is recoverable from clients, however, the longer rosters, the need for quarantining, the travel restrictions on senior management, and operational interruptions due to virus outbreaks are reducing the productivity of Perenti's international underground operations.

Perenti managing director and CEO Mark Norwell said the company continued to focus on delivery of its 2025 strategy while facing some challenging headwinds.

"While I am pleased with our achievements during the third quarter, it is unfortunate that these positive catalysts have coincided with the continuation of a challenging backdrop that includes the persistence of, and in some cases, worsening of COVID-19 impacts, the emergence of upwards wage pressure in the Australian labour market and further strengthening of the Australian dollar," he said.

"We have done well to manage the controllable aspects of the business, however, the cumulative impact and forecast persistence of the current headwinds has resulted in a softening of the outlook for FY21 and FY22."

Norwell said he was confident the company would continue to manage the acute impacts of the current challenges and still deliver on its growth aspirations.

On the positive side the company has announced more than $700 million of contract awards this year and expanded its growth pipeline by 20%, with a lot of that relating to underground gold and nickel opportunities in Australia and North America.

Perenti points to the letter of intent it received from Newcrest Mining for its Red Chris gold mine in Canada as a sign the North American market is receptive to Perenti's "differentiated" underground service offering.

When it says differentiated it means in terms of the North American market where its is common for contractors to use several machines where an Australian contractor would use one.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining Monthly Intelligence team.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining Monthly Intelligence team.


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