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Forge investgors brace for more agony
Forge investgors brace for more agony

Punch-drunk Forge Group shareholders are braced for another hit, with the engineering contractor flagging increased losses to accommodate its growing power contract blowouts.

The company went into its third trading halt in as many months before the market opened yesterday, citing a pending update on its forecast underlying results for the 2013-14 year.

Forge and its advisers declined to comment further but expect an announcement on Wednesday.

The group last updated its earnings on November 28, emerging from a worryingly lengthy suspension to announce $127 million of writedowns on soured power station projects at Diamantina and West Angelas in Queensland and WA respectively.

Inclusive of those cost blowouts, Forge had forecast an annual loss before interest, tax, depreciation and amortisation of $85 million to $90 million.

However, the situation had since deteriorated with the announcement last week of an additional $23 million to $28 million of writedowns on West Angelas, which is being built for iron ore giant Rio Tinto in the Pilbara.

That update dealt another blow to recovering investor confidence in the embattled company, sending its shares back under $1 where they have remained.

The stock last traded on Thursday at 90¢, a far cry from its year high of $6.91 in June.

Under-pressure chief executive David Simpson has insisted Forge’s review of West Angelas and Diamantina, near Mt Isa in Queensland, has been “fulsome” and that the final cost impact is capped at $155 million.

However, investors remain fearful of losses on other projects in Forge’s order book, which has reduced to about $1.5 billion as of last week. Of that, about $600 million is expected to be delivered this financial year.

The project blowouts, revealed just weeks after its annual meeting, shredded Forge’s share price and prompted a major executive reshuffle and changes to internal reporting structures.

Mr Simpson said last week the company had stripped $10 million from its cost base, with a further $5 million to come this year, all part of Forge’s attempt to return to profitability and win back investor support.