Friday 01 July 2016 by Alen Golubovic Company updates

Barminco awarded two major contracts, buys back more bonds

Two major contract wins are credit positive for the contract miner

Barminco has recently been awarded two major contracts:

  • A new three year $275m contract, with a two year option, at the Kundana gold mines in the Eastern Goldfields, WA, from the East Kundana Joint Venture (Northern Star Resources 51%, and Rand Mining and Tribune Resources together 49%). A link to the announcement is available here.External link - opens in a new window
  • A five year contract extension at MMG’s Dugald River zinc project worth up to $270m, which was won on tender (Barminco held the incumbent contract which started in 2012), according to the Australian Mining news service (link to article here).External link - opens in a new window

These contracts are some of Barminco’s largest and the company will provide a full suite of underground mining services including development, production, haulage, maintenance and operation of underground services.

We view the contract wins as credit positive, especially given the tough market environment for ‘mining services’ businesses. We have seen many miners take contracted services ‘in house’ to maximise production efficiency and reduce costs. The new contract at Kundara was awarded by key client Northern Star, with Barminco already providing diamond drilling services at a number of other Northern Star sites.

In addition Barminco has repurchased a further USD3m in bonds via a privately negotiated transaction, which leaves USD306.2m outstanding.

The Barminco 9.00% USD bond maturing in June 2018 is currently offered at an indicative price in the low 90’s and yields a return in the mid to low teens. However it should be stressed that supply is limited.

The high yield is reflective of the speculative nature of the bond and take account of the Barminco’s high financial leverage as well as the heightened risks associated within the mining services sector. The bonds are relatively illiquid and so we may see a reduction in yields as a result of the contract wins and progressive debt reduction.

Please contact your FIIG representative for further details on the Barminco 9.00% USD bond. Available to wholesale investors only with a minimum face value of USD10,000. Pricing is indicative only and subject to change.