Macmahon Holdings Ltd has executed a binding agreement to acquire the key contracts of the Pit n Portal (PnP) underground services business from Emeco Holdings Ltd. Macmahon and Emeco have concurrently entered a strategic rental partnership where Emeco is the preferred supplier of rental equipment to Macmahon in Australia for applications in surface mining, underground mining and civil infrastructure projects. The rental partnership incorporates the PnP underground fleet and is at competitive commercial rates, facilitating growth flexibility and maximising free cash flow for Macmahon.
The acquisition and strategic rental agreement Macmahon says is consistent with its strategy of building scale and capability in its underground division, diversifying its services and operations, and growing in a capital light manner. The acquisition includes the contracts, inventory, site fixed infrastructure assets and light vehicles of certain PnP projects, and brings additional skilled employees to Macmahon’s workforce. The circa A$10 million consideration payable will be satisfied by an asset sale and offset arrangement. The transaction is expected to add in excess of A$140 million to Macmahon’s order book, and be immediately EPS accretive.
PnP specialises in the provision of hard-rock underground mining equipment and services to the Australian underground mining sector. The business was established in 2002 and was acquired by Emeco in 2020. Core activities include mining services and maintenance solutions for underground mines in Australia. Under the transaction Macmahon will employ transferring employees across strategic locations in Perth, Kambalda and Kalgoorlie, as well as customer sites in Western Australia. Key project contracts include Durkin (nickel), Cassini (nickel), Tank (gold) and Daisy Milano (gold).
In more detail the deal involves A$10 million paid to Emeco while Emeco has also purchased approximately $10 million of mining equipment from Macmahon, resulting in a neutral cash position. The assets being acquired by Macmahon include PnP contracts, inventory, fixed infrastructure assets and light vehicles. PnP’s underground mining fleet will form part of the strategic rental agreement with Emeco. Around 260 PnP employees are joining Macmahon’s workforce with existing employee liabilities to be transferred to Macmahon. The effective economic transfer is from 31 December 2023, with transaction completion expected in early 2024, subject to the satisfaction of customary conditions.
The agreement has Emeco as the preferred supplier of rental equipment to Macmahon in Australia for applications in surface mining, underground mining and civil infrastructure projects and incorporates PnP’s existing underground mining fleet. The agreement comprises mutually agreed, competitive commercial rates reflecting a secure long term rental partner and includes rebates for agreed rental volumes, minimum hours and a commitment from Macmahon to provide Emeco with an opportunity to bid on future rental requirements in Macmahon’s open-pit, underground and civil infrastructure operations. The initial agreement term is to 31 December 2028 and evergreen thereafter with customary termination rights.
Macmahon’s Chief Executive Officer and Managing Director, Michael Finnegan said: “A key driver of Macmahon’s recent growth has been the underground mining division which has grown to approximately 25% of the company’s revenue, facilitated by the acquisition of GBF in 2019. Our strategic objective has been to continue building scale in underground to diversify earnings and operations and the acquisition of these Pit n Portal contracts and assets is 100% consistent with this. It adds significant capability to our underground business with the addition of around 260 skilled employees and builds on our existing client relationships. We look forward to working with Pit n Portal’s customers and strengthening our relationships with them.”
He adds: “Importantly, we have been able to execute this transaction in a capital light manner, preserving our cash and entering into a strategic rental partnership with Emeco which provides us enhanced capital flexibility for our broader business into the future. The rental partnership allows Emeco to exit from its underground contracting portfolio and to focus on its core rental business while building a long-term relationship with Macmahon with increased fleet rental opportunities in open-pit, underground and civil operations. For Macmahon it allows us to maintain capital discipline, enhance return on average capital employed and maximise our free cash flow generation.”
