Downer still reviewing its future options for capital intensive mining business

In its full year results in August, Downer Group announced that it would be undertaking a Portfolio Review “to determine whether there are opportunities to enhance the alignment” of its portfolio. It noted that an important area of focus for this review is the Mining business. Possible options for Downer may include a spinoff of the mining business under a new name or a sale of the whole mining business or parts of it.

In addition to general contract mining services both surface and underground, Downer’s mining assets include one of the world’s leading mining tyre management companies Otraco (which delivers these services across more than 60 mine sites in Australia, South America and South Africa) as well as the Snowden mining consultancy and Downer Blasting Services, one of the largest blasting service providers in the Australian mining industry.

CEO Grant Fenn stated on November 7: “Downer’s Mining business is a leader in Australia, with excellent people and a strong and proven track record. However, it is also very capital-intensive. Mining contributed about 12% of Downer’s profit in the 2019 financial year but required more than 50% of the group’s total capital expenditure to achieve that result. The process is progressing and we will inform the market of any significant developments.”

Downer has also had some big recent contract wins. On October 1, Downer EDI announced a two year contract, valued at approximately A$200 million, to provide mining and related services at the Goonyella Riverside coal mine. The contract has provisions for it to be extended for up to a further three years.The mine is owned by BHP Billiton Mitsubishi Alliance (BMA) and is located in Central Queensland. The scope of work to be carried out by Downer under the contract is pre-strip overburden removal and Downer will use existing capital equipment.