Engineering and mining services group Monadelphous Group Limited (ASX: MND) has emerged from a trading halt today with its shares plunging 6.5% to a low of $9.99. It has now fallen 36% over the last 12 months and 65% since early 2013.
The company entered the trading halt on Thursday due to a "contractual claim against the company", although no further details were provided at the time. This morning however, it revealed that the dispute was with Wiggins Island Coal Export Terminal Pty Ltd (WICET) for work it had done through its unincorporated joint venture, MMM.
Monadelphous has played down the claim for approximately $130 million and said that it would lodge a counter-claim through the Supreme Court of Queensland worth in excess of $200 million. In the update to the market this morning, Monadelphous said that it "rejects WICET's position as outlined in the claim and will vigorously defend the proceedings. Further, it will pursue a counter-claim through MMM in excess of $200 million. Mondelphous considers that MMM has good grounds for making such claims."
Monadelphous is confident that these actions will not have a material impact on overall earnings for the year ending 30 June 2015 and is confident in the strength of its balance sheet to support it through the process. Despite this confidence however, investors should still approach Monadelphous with caution.
The mining industry is facing headwinds with many of the miners deferring or cancelling capital projects. Others are simply taking their services in-house to save on the premiums charged by companies like Monadelphous, Bradken Limited (ASX: BKN) or Macmahon Holdings Limited (ASX: MAH), thus reducing their earnings. While a winner or two could certainly emerge over time, the risks appear too great to warrant an investment in the sector, even at today's depressed price levels.
