Macmahon confident of resolving Telfer dispute with Newcrest

The Telfer mine in the East Pilbara region of Western Australia. Image: Newcrest Mining

Macmahon Holdings expects an “acceptable agreement” will be made with Newcrest Mining in the near future regarding an increase in revenue from contracts at the Telfer gold mine in Western Australia.

The Perth-based contractor had been seeking Newcrest’s agreement to proceed to litigation over work rates at Telfer, as it entered and extended trading halts on the Australian Securities Exchange (ASX) earlier this week.

Macmahon reported that while facilitated negotiations with Newcrest did not initially reach a resolution, progress in recent discussions had provided renewed optimism of pay increases.

Given this progress, Mcmahon revealed that its assessment was the present value of incremental cash flows from the Telfer contract was likely to be positive over the remaining term of the project.

Despite this positive step, the company pointed out that its assessment could change in the future.

Macmahon is pursuing increased contract rates to recover the additional cost of operating under changed conditions, including volume changes and manner and sequence of mining required.

The contractor flagged a provision in the order of $25–35 million to cover the costs of continuing the contract.

Macmahon had previously planned to bypass the mediation process that usually precedes litigation in place of past negotiations with Newcrest.

As previously announced, Macmahon plans to continue to perform its Telfer contract responsibilities. The contract is set to run until January 2023.

The announcement comes as Macmahon reported on its 2019 financial year which featured a strong earnings uplift.

This includes a 55 per cent increase in revenue to $1.103 billion as the company increased activities across its contract mining projects in Australia and Indonesia.

The results coincide with a surge in net profit after tax, increasing from $33.2 million in the 2018 financial year to $46.1 million in the 2019 period.

Macmahon chief executive officer Michael Finnegan said the strong results reflect the company’s ability to execute on its large order book for its mining clients.

“I am pleased we have delivered significant revenue and earnings growth in financial year 2019, with our performance demonstrating Macmahon’s ability to deliver value for both our clients and shareholders,” he said.

“This reliable performance and the good revenue visibility provided by our $4.7 billion orderbook has underpinned the Board’s decision to reinstate dividends to Macmahon shareholders.’

The 2019 financial year final dividend of 0.5 cents per share is the company’s first dividend in seven years with the board aiming to pay dividends on a “sustainable basis going forward.”

Going forward, Macmahon said it is well positioned for growth in the 2020 financial year with secured work in hand of $1.2 billion.

“The acquisition of GBF, our $4.7 billion order book, and significant tender pipeline means the Company is well positioned to deliver further earnings and cash flow growth in financial year 2020,” Finnegan said.

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