Perenti to cut off AMS exploration arm

MINING services company Perenti will sell the loss-making exploration arm of struggling African subsidiary AMS and sell off idle fleet after an unsatisfactory performance in surface mining in Africa impacted group earnings.
Perenti to cut off AMS exploration arm Perenti to cut off AMS exploration arm Perenti to cut off AMS exploration arm Perenti to cut off AMS exploration arm Perenti to cut off AMS exploration arm

The ambush in Burkina Faso killed 19 workers

While Perenti's Australian surface mining operations are performing well AMS' revenue was hit by the cancelation of three contracts at Edikan, Boungou and Nsuta.

Capital from these projects will be redeployed to other sites.

Perenti called force majeure on the contract at Boungou in Burkina Faso and the one at the Bissa mine after 19 workers were killed and another 26 wounded in a terrorist ambush in November.

AMS pulled its workforce out of Boungou by helicopter but stayed the course on three other contracts in the landlocked sub-Saharan nation at Sanbrado, Siou and Yaramoko.

The contract at the Bissa mine was also terminated after consultations with external security consultants and government agencies about the ongoing security risks in Burkina Faso.

While the loss of the Boungou contract had a negative impact in the first half of the year the withdrawal is expected to benefit second half earnings.

The contract at the Nsuta manganese mine in Ghana was terminated also after a government directive to cap production at the mine.

The contract at the Edikan gold mine in Ghana also impacted revenue.

There are signs of a turnaround, however, with AMS securing more than $550 million in contract extensions and new work since July 2019 including a $235 million, five-year contract at the Sanbrado gold mine.

Perenti has 657 pieces of equipment in its surface mining fleet including 213 drills, 186 trucks, 146 ancillary vehicles, 47 excavators, 46 dozers and 19 loaders.

The 510-strong underground fleet includes 183 ancillary vehicles, 155 drills, 88 loaders and 84 trucks.

Despite the disappointing performance in Africa Perenti reported revenue of $1 billion, which was up 5.3% on the previous half.

Earnings before interest, tax, depreciation and amortisation of $222 million were up 10.6% while underlying net profit after tax was down 7% at $60.1 million.

Group statutory NPAT was $38.2 million in the half, compared to $217 million in the previous half.

Perenti managing director Mark Norwell said the results showed the diversity and resilience of the expanded group.

"At a group level our underlying earnings were strong, which was an impressive achievement, given the challenges in African Mining Services, demonstrating the breadth of Perenti's portfolio," he said.

 "Perenti's underground mining business, across Australia and Africa, performed exceptionally well, with earnings growing by more than one-third over the prior corresponding period as we successfully integrated Barminco into the Perenti group.

 "Meanwhile, in our surface mining business, our Ausdrill operations in Australia performed in line with expectations but our AMS operations in Africa delivered an unsatisfactory result that impacted Group earnings."

Norwell said AMS would be transformed and a range of initiatives were already underway, including enhanced earnings, cash conversion and efficient capital management.

 "In November, 19 of our employees tragically lost their lives and a further 26 were injured as a result of an unprecedented terrorist attack in Burkina Faso," he said.

"In response, we reassessed where and how we operate, with Perenti ceasing operations in Burkina Faso's higher risk locations given the current security situation."

Norwell said Perenti continued to do everything possible to ensure all injured employees, work colleagues and impacted families receive the best possible care and support.

He said as part of a service expansion Perenti would further develop surface mining capability and enter new jurisdictions.

This will include looking at select strategic opportunities that align with Perenti's investment criteria and are complementary to the company's existing capabilities.

Norwell said this might involve buying out Downer's mining services division, however, that will only happen if the parties could agree to terms that represented value for Perenti shareholders.