Room for mining services to grow

Accommodation construction and services company MAC Services’s recent share price run has been symptomatic of renewed interest in mining and mining-services stocks over the past few months following the improved outlook for the resources sector.

 

While market observers have debated the prospects of a double-dip recession, hard commodities prices have remained strong, emboldened by China’s economic stability and continued demand for resources.

 

MAC has rebounded dramatically since the controversial resources super profits tax was replaced with a less contentious proposed tax regime in the shape of the minerals resources rent tax (MRRT).

 

The plunge in shares prices across the mining services sector that followed the announcement of the RSPT now must seem like a distant memory with most companies having not only regained their losses but also momentum.

 

MAC has risen more than 370 per cent since the market bottom in March 2009 and last week hit a 32-month high of $3.26. The stock took off earlier this month after MAC said it has signed a contract with Narrabri Coal Operations to build a worker’s accommodation village in Narrabri, NSW, to service the area’s growing coal industry.

 

The deal was signed following the group’s purchase of a 33 hectare site at Narrabri. Shaw Stockbroking recently noted to clients that the company was confident of achieving its growth plans.

 

The broker said MAC’s expansion plans would see it add close to 1200 rooms to the company’s Bowen Basin village portfolio during the current financial year, with most to be completed in the second half of the year.

 

MAC employs more than 400 staff nationally and has about 5000 permanent rooms under management in Queensland and Western Australia.

 

Outside of its main sites, it has plans to grow in other mining regions including Muswellbrook, Karratha and Moranbah. “We see MSL as well poised to repeat the growth profile it previously exhibited. Moreover, we believe the risk profile is positively skewed.” The broker said that MSL would likely be able to fund its growth without an equity raising. Shaw has a “buy” recommendation and a price target of $3.14 on the stock.