Shaft Sinker cautious of South Africa worker strikes

Shaft Sinker Holdings expects 2013 full-year results to meet market forecasts following a major restructuring.

The provider of shaft sinking services to mining industries said it anticipates its restructuring, which began at the start of the year, to boost performance in the second half.

As part of the shake-up, the company removed a level of operational management to improve efficiency.

The company also sees the full-year gaining from higher margin Hindustan Zinc and Kibali Goldmine contracts.

However, the group said it is cautious of the risks of South African labour situation which remains tense as wage negotiations begin next month.

Its project partner, Lonmin, has been hit by illegal strikes by its employees.

The group warned it may suffer efficiency losses from the issue, which may negatively impact margins.

"The operational underperformance at certain South African projects has necessitated management taking further action resulting in far reaching changes to its project management structures," said Chief Executive Officer, Alon Davidov.

Joint-venture platinum mining projects Saffy and Hossy were expected to be scaled down in the first quarter of this year but were bolstered by extensions to the scope of the work.

The Hossy Shaft is, however, projected to discontinue towards the end of this year.

The Karee 3 shaft and ore development project has been converted to an agreed target cost contract which provides for a reduced risk profile and improved profitability.

At AngloGold Ashanti's Moab Khotsong project, work continues to make progress with revenues and margins ahead of management's estimates. Costs associated with the previous strike action were recovered in line with the terms of the contract.

The Impala 16 shaft contracts at the main and ventilation shafts will come to an end in June following historical low rates and underperformance at the project which resulted in a fall in margins.

The group said it continues to pursue new projects and is awaiting client adjudication on several tenders and proposals in South Africa and Europe.

"Notwithstanding the adverse impact of external factors, including the forthcoming labour negotiations in South Africa, we are working very hard to secure substantial new contracts to build long term strength in the order book and we are confidentthat this high quality order book will lead to sustainable revenue streams and on-going returns to shareholders," Davidov added.

At the end of March, Shaft Sinker had gross cash of around £3.0m and interest bearing debt of around £10m.

Shares rose 0.70% to 36p at 12:34 Friday.

RD