Macmahon Holdings Limited (ASX: MAH) reported that following an extensive tender process, it has been selected by St Barbara Limited (ASX: SBM) as the mining contractor for the Gwalia underground gold project in Western Australia for an initial contract term of five years.
MAH said that it is currently finalising the new contract with St Barbara which is expected to add circa $500 million to order book.
Macmahon said that the contract was an important strategic milestone and would significantly increase scale of underground business. MAH’s underground mining services are expected to commence from May 2021.
Gwalia UG mine
The Gwalia mine is one of Australia’s oldest underground gold mines, with St Barbara having operated this flagship asset for the past 15 years. The mine was originally established in 1897 by Herbert Hoover, who later became President of the United States.
The companies said that the new contract terms dictate an appropriate risk responsibility between MAH and St Barbara and are expected to improve underground mining performance and productivity, while reducing operating costs and retaining the worker headcount.
The scope of work for Macmahon will involve a whole of mine service including mine development, ground support, production drilling and blasting, loading and trucking, shotcreting, and paste fill reticulation.
Early work from April
MAH said that it will commence early works on site in April, before full mobilisation in May 2021. Macmahon said that it estimates the contract will generate approximately $500 million in revenue over the initial 5-year term, which will require capital expenditure of circa $40 million over FY21 and FY22.
A five-year term with option to extend
MAH said that the initial contract term is five years, with an option for St Barbara to extend for a further three-year period.
St Barbara and Macmahon are expected to sign the mining services agreement in March 2021. MAH would be replacing Byrnecut as the mining contractor for the Gwalia UG project after their service over the past seven years.
St Barbara Managing Director and CEO Craig Jetson said: “St Barbara is delighted to appoint Macmahon as a key partner in our commitment to instill a performance-led-culture at Gwalia. This change is indicative of St Barbara’s determination to enliven Gwalia’s future, to safely and sustainably rebuild operational performance and to secure future investment by delivering predictable and strong financial returns.
We would like to thank Byrnecut for their service over the past seven years and look forward to an orderly and effective transition. During the handover period management will be focused on the well-being of our people and continuity of operations.”
Macmahon’s MD and CEO Michael Finnegan said: “We are delighted to be selected for the Gwalia operation by St Barbara, a well-established and respected gold producer. We will work very closely with our new client to ensure continuity of operations during the transition period. This new project will make an important contribution to our strategic objective to diversify and expand our underground business.”