Analysts Downgrade Monadelphous As Rio Tinto Makes $493m Damages Claim

Shares in Perth-based mining services company Monadelphous dropped to a four-year low of $7.77 yesterday as broking analysts cut their ratings on the stock in the wake of news of the $493 million damages suit from Rio Tinto.

Analysts from UBS and Wilsons cut the company’s rating after Rio lodged the writ in the WA Supreme Court in Perth last Friday.

The action relates to a fire at Rio’s Cape Lambert iron ore processing facility which prepares ore for export from the Robe River mines.

“The $493 million is a significant figure,’’ UBS analyst Nathan Reilly said in a note to clients.

“As such, it could arguably be interpreted as either an ambit claim or an indication that Monadelphous may be under-insured relative to the liability limitations it includes within its maintenance contracts.’’

Mr. Reilly added that the claim is “highly unusual in the context of how maintenance contract risks are typically structured’’.

According to other analysts, the danger is the loss of business from Rio over the next few years as a result of the contract dispute.

The shares ended down more than 4% at $7.2, which was the lowest close for four years.

Monadelphous said in a statement earlier this week that it would contest Rio’s action.

It said its unit Monadelphous Engineering Associates (MEA) had been performing maintenance shutdown services prior to the fire breaking out. Monadelphous said Rio has claimed that MEA breached terms of a contract with Rio and caused the fire.

“Monadelphous Engineering Associates (MEA) had been performing maintenance shutdown services prior to the fire commencing, and Rio Tinto has alleged that MEA was in breach of the maintenance contract, thereby causing the fire,’’ Monadelphous told shareholders this morning.

The fire damaged part of the plant that separates Robe Valley lump and fine products and led to Rio declaring a “force majeure” on some contracts.

The damages being sought largely consist of losses due to inability to process iron ore during the period of repair work at the facility.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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