The Australian Mining Sector- A Look At GR Engineering Services

The progress of engineering companies supporting the mining and mineral processing industries is directly proportional to the mining sector of the country where the company is operating. The Australian mining industry is globally acknowledged as Australia has the largest reserves of lead, nickel, uranium and zinc as per Australian Trade Commission 2013. In 2012-2013, the mineral industry contributed 10% of Australia’s GDP.

Since the mid-19th century, the mining industry has contributed significantly to the Australian economy. In 2018, the mining industry alone added over $148 billion to the Australian economy.

Important facts on the Australian Mining Sector (by September 2019 Quarter End)

In the September 2019 quarter, as per a report published by the Australian Government, the world industrial production cycle is slowing down in the recent months and is expected to further slow, largely depending on whether China can avoid slumped growth.

The US-China trade tensions have impacted the slow growth in the Australian mining industry, and the prices of major resource commodities in Australia. It is expected that the prices would further go down because of the softer demand and increasing supply. Despite weaker prices, higher export volumes along with lower than expected Australian dollar are likely to see Australia’s resource and energy export earnings established a new record of $282 billion during 2019-2020. A further price falls is likely to result in earnings to fall to $258 billion during 2020–21.

In this article, we would look at an ASX-listed engineering company, GR Engineering Services Limited and understand its business, performance in the past and recent developments:

GR Engineering Services Limited (ASX: GNG)

GR Engineering Services Limited (ASX:GNG) is a leading process engineering consulting and contracting company that provides superior engineering design as well as construction services to the mining and mineral processing industries.

Services provided by the company:

GR Engineering Services Limited provides the below-mentioned services:

• Feasibility Studies: The company provides the complete project study as well as engineering services for mining sector projects and holds experience across various commodities. It has assisted clients in their project development phase of scoping, pre-feasibility and definitive level studies which comprise of bankable researches for project finance.
• Design and Construction: The company delivers its projects using Engineering, procurement, construction (EPC) turnkey design and construction arrangements using its in-house design as well as construction assets.
• Project Management: GNG offers complete project management services which comprise of project studies, engineering and procurement, construction and commissioning, asset management plans and system development, operations and technical support along with infrastructure development.
• Consulting Services: GNG’s consulting services include engineering and process design consulting services, plant evaluation and condition reports, plant operation along with maintenance support and optimisation and the provision of owners representatives as well as teams for project management and delivery.
• Asset Management: GNG offers its clients with value adding asset management strategy services. It aims to provide its clients with maximum effectiveness of an asset to ensure smooth plant operation and minimum risk of unexpected collapse and availability of correct spares and materials. It also provides detailed maintenance budget projection along with efficient planning and scheduling of tasks and allocation of resources.

Recent Development

EPC Contract – Carosue Dam Operations Plant Expansion Project

On 5 November 2019, GR Engineering Services Limited entered into an agreement with Saracen Gold Mines Pty Limited, a subsidiary company of Saracen Mineral Holdings Limited (ASX:SAR) for the engineering design, procurement plus construction of expansion works on the mineral processing plant at the Carosue Dam gold operations, 120 km towards the north east of Kalgoorlie in Western Australia.

GNG would be responsible for upgrading the current processing plant capacity to a nominal throughput of 3.2Mtpa by installation of secondary grinding equipment apart from the upgrades of the current CIL circuit as well as other process infrastructure. The contract is worth $24.5 million.

FY2019 Highlights:

During FY2019, GR Engineering Services Limited was able to secure four EPC contracts. These includes:

• Carosue Dam Operations Paste Plant Project: It was a $17.9 million contract that was given to the company for the design as well as the construction of a paste fill plant for Saracen Gold Mines Pty Ltd. The project completed (practically) in April 2019.
• Fosterville Paste Plant Project: It was a $23.9 million EPC contract which was signed between the company and Kirkland Lake Gold Limited under which GNG was responsible for the design and construction of a paste production facility for its Fosterville gold operation. The Project work began in December last year (2018).
• Northern Wellfield Water Supply System: It was a $21.2 million EPC contract which the company signed with OZ Minerals Carrapateena Pty Ltd under which GNG was in charge for the design as well as the construction of the Northern Wellfield for the Carrapateena Project, South Australia. Under the project, the company’s work includes survey, design, supply, building, testing and conveyance, to name a few.
• Sandy Ridge Project: It is a $46 million EPC contract signed with Tellus Holdings Limited under which GNG was responsible for the design plus construction of a fully integrated facility for the long-term storage and permanent separation of risky and intractable waste and related kaolin mining operation.

FY2019 Results:

• Revenue from ordinary activities declined during the period by 35.74% to $182.2 million as compared to pcp.
• Profit from ordinary activities after tax tumbled by 43.91% to $6.5 million on pcp.
• GNG declared a fully franked interim dividend of 4 cents per shares and final dividend of 2 cents per share (unfranked).

Stock Performance:

The shares of GNG has given a negative YTD return of 22.94%. The shares on 8 November 2019 opened at a price of $0.850, a gap up of $0.010 from its last closing price and quoted $0.85, up 1.1% at market close. GNG has a market cap of $129.04 million, with 153.62 million outstanding shares, PE ratio of 19.76x and an annual dividend yield of 7.14%.

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