While Mastermyne was aware it would need to discuss the ongoing future of the contract it did not expect the decision so soon after its annual general meeting on Monday, managing director Tony Caruso said.

He said it was disappointing to see the contract ramp down a few months earlier than originally expected.

“What we do know is that all labour will cease to be required onsite from approximately the end of January,” he said.

Centennial Coal chief operating officer Steve Bracken said the decision was regrettable but necessary in the current environment.

He also said the relationship with Mastermyne had been “very professional and successful” and that both companies would work together to ensure that all people displaced as a result of the decision were treated with “respect and dignity”

Mastermyne and Centennial Coal management will immediately start working on a plan for the orderly transition of labour and equipment from the project.

As reported in yesterday’s ILN, Centennial Coal has responded to the industry downturn by deciding to place its Mannering and Airly mines in New South Wales on “care and maintenance” from January, resulting in about 40 job losses across the group.

Centennial – bought by Thai energy giant Banpu in 2010 for $2.5 billion – is reviewing its capital expenditure in response to record high production costs and increased government processes and charges.

The financial effects of this decision are not yet fully quantifiable by Mastermyne and there are a number of operational decisions still to be made that will determine earnings in the ramping down of the contract.

The Newstan contract was a part of the company’s order book for the remainder of the 2013 financial year but was not part of the 2014 order book and beyond.

Stockbroker Patersons said in a research note: “Although MYE flagged this problematic contract during its AGM on Monday, this represents a disappointing development.

“Centennial Coal is the company’s only major non-tier one customer and non-production oriented contract.

“We estimate the revenue impact on FY2013 at around 6 per cent. At the [earnings before interest and tax] level, we estimate the impact at around 10 per cent.

“That said, this impact may be partly offset by tendering opportunities, which are likely to impact Q4 FY2013.”

Caruso said Mastermyne’s tender pipeline had increased to more than $1 billion and the company would now look to these opportunities to replace the revenue lost from the early ramp down of the Newstan contract.

The company’s minesite diversity, strong balance sheet and high variable cost structure would ensure that the effect of the early ramp down would mitigate the impact to its overall business, he said.

At this stage it was too early to tell if Mastermyne would return to Newstan to complete the work under the contract but it would stay close to the Centennial Coal management team as it worked through these decisions, Caruso added.