JOHANNESBURG (miningweekly.com) – The London Aim-listed Africa-focused mining project company MDM Engineering, which is back in the black, reports that 40% of its projects are Chinese funded in some form, a far cry from 2008 when MDM was not delivering a single project that was Chinese linked.
“I think Chinese funding’s going to continue, which is why I’m not as concerned as some people are about the effect on our projects of the European debt crisis.
“If Europe gets worse, I don’t think that we’re going to see any of our projects pulled like we saw in 2008,” MDM executive director George Bennett tells Mining Weekly Online.
MDM, which has $600-million worth of active project execution work under way on the African continent, is continuing to experience increased demand for tenders, feasibility studies and projects going into execution.
The company has seven execution projects in process and a project pipeline of between $1.5-billion to $2-billion.
MDM anticipates being in simultaneous execution of a minimum of eight projects next year and its 18-month target is to get up to ten execution projects at any one time.
“We’re getting busier,” says Bennett.
While MDM perceives project house DRA as being by far the busiest in the process plant design and construction field, it sees itself as being busier than Bateman, TWP and GRD Minproc.
“The real comparisons for us are in Australia, where there are about 20 listed mining services companies and we compete with quite a few of them,” Bennett says.
Last year, MDM forged a strategic alliance with the ASX-listed GR Engineering and the two companies have bid jointly for the Chalice gold project in Eritrea.
Through the alliance MDM is seeking to access some 180 Australian companies that control more than 400 mining projects in Africa.
MDM’s projects are contracted on both engineering, procurement and construction management (EPCM) and EPC models to balance risk.
The company has had two profit updates so far this year and anticipates a third profit update ahead of year-end results in March 2012.
Its latest pretax profit forecast is up 21% on the previous $5.7-million forecast. Profitability is continuing into the first six months of the new financial year to September 20, with revenue rising by 176% to $19.84-million ($7.19m in 2010).
Gross profit increased 398% to $7.52-million ($1.51m in 2010) and pretax profit to $3.31-million.
The gross profit percentage is 37.9% compared with 21% for the comparable period last year.
“The nature of this business lends itself to a gross profit of between 35% and 40%, which is a good gross profit percentage if you are working on a pure EPCM model.
“If you start including EPC fixed-price contracts, the gross profit percentage will drop to anything between 12% and 17%,” financial director Dominique de la Roche tells Mining Weekly Online.
MDM will from this financial year-end be reporting two gross profit percentages; a normalised percentage to reflect EPCM-only contracts and the real gross profit percentage to reflect the impact of fixed-price contracts.
“We just want to give the market the comfort that the fundamentals are okay,” says De la Roche.
The company favours a combination of EPCM and EPC contracts.
“You don’t want everything on fixed-price contracts but there is more money to be made under fixed-price contracting if you get your pricing correct.
“Just selling purely man hours under EPCM is not a model that we like because it encourages inefficiency and we see that with some of our competitors who are far bigger than we are in man hour terms, not making much more profit than we are for a full year.”
Currently of the $600-million under execution, $160-million of that is fixed-price EPC, which is more staff intensive.
Next year MDM expects to win contracts that will take the company to a 50:50 EPC/EPCM split. To further supplement the workload, MDM is currently undertaking five bankable feasibility studies (BFSs) and a number of prefeasibility studies (PFSs).
One of the more significant BFSs is for African Barrick Gold on a brownfield 2.4-million tons-a-year gold tailings retreatment plant at Bulyanhulu in Tanzania.
If successful, an EPC execution contract will begin in the first quarter of 2012.
A combination of ten BFSs and PFSs and a steady flow of new requests are expected to result in smaller projects in the next 12 months.
MDM recently completed tailings retreatment process plants for TSX- and JSE-listed First Uranium’s Mine Waste Solutions project.
The company is constructing a manganese plant in the Northern Cape in which steelmaker Arcelor Mittal has 50%, Kalahari Resources 40% and South Africa’s State-owned Industrial Development Corporation 10%.
Site construction on a concentrator plant for Tharisa Minerals has begun and a nickel atomiser integrated with a 3 MW direct current arc-furnace for the State-owned Mintek minerals research organisation is under way.
It is in the construction phase of a gold ore crushing plant for Gold Fields at Tarkwa, in Ghana, and has begun earthworks for dense medium separators to process copper and cobalt ore for ENRC Camrose in the Democratic Republic of Congo.
Currently small infrastructure works are being supervised on site at a copper concentrator for the JSE-listed Metorex, and project set-up is under way for a gold heap leach plant for Banro.
MDM has $14.5-million cash and near-cash debtors net of creditors of another $3-million, taking the total to $17.5-million.
The company targets net cash holdings of between $20-million and $25-million, after which it will look to increasing its dividend payout ratio.
The company has paid a dividend every six months since listing the business in 2008, even during the 2011 loss, and declared a 2.5c dividend (0.50c) in the latest period.
The former MDM Ferroman got into a spat with the London-listed Randgold Resources, whose CEO Dr Mark Bristow put the company into liquidation.
Bennett decided to restart the company with a new funding partner as MDM Engineering in 2006, and bought the previous company’s intellectual property and building.