Resources contracts off to a slow start in FY20

ANALYSIS by Argonaut Securities has found that contracts in the resources space have gotten off to a slow start for the 2020 financial year.
Resources contracts off to a slow start in FY20 Resources contracts off to a slow start in FY20 Resources contracts off to a slow start in FY20 Resources contracts off to a slow start in FY20 Resources contracts off to a slow start in FY20

Staff reporter

Argonaut analyst Ian Christie said there had been far more infrastructure-related work awarded to ASX-listed contractors than resources work so far this financial year.

It said the amount of resources-related work had been disappointing and "below our expectations given the large iron ore projects underway".

BHP is building the US$3.6 billion South Flank project, while Rio Tinto is developing the $2.6 billion Koodaideri project and last week flagged significant expenditure ahead to replace depleting mines.

Fortescue Metals Group is building the $1.275 billion Eliwana hematite project and the $2.6 billion Iron Bridge magnetite project.

The major developments were expected to lead to a contracts bonanza, but Christie said 67% of contracts won in the resources sector so far this financial year had been related to production, not construction, and mostly in coal rather than iron ore.

Just four contractors have won 80% of the work awarded so far. CIMIC Group has picked up 43%, NRW Holdings 19%, Monadelphous 13% and Perentie Global 7%.

Argonaut has tracked A$3.3 billion of contracts awarded so far to ASX-listed contractors.

FY19 was the best year for contracts since FY14 when $15 billion of resources contracts were awarded, while FY15 was the bottom of the market with less than $5 billion of resources work awarded.

FY11 was the best year this decade for resources contracts with more than $30 billion awarded.