Macmahon is set to escalate its contract dispute and pursue legal action against Newcrest Mining to get better rates for its work at the Telfer project in Western Australia.
The contractor reportedly did not receive an acceptable outcome through its facilitated negotiation process with Newcrest.
Macmahon plans to bypass the mediation process that usually precedes litigation in place of the past negotiations, and is now seeking Newcrest’s agreement to proceed to litigation immediately.
“We are disappointed we have got to this point, particularly after such extensive discussions to seek to agree an outcome,” Macmahon chief executive Michael Finnegan said.
“However, we have exhausted all options available to us to agree fair and reasonable rates with Newcrest for our work, so we are left with little choice.”
Macmahon’s “significant” variation claim arises from changes in the mine plan and contract program implemented by Newcrest. This includes changes to the volume, manner and sequence of mining required, Macmahon reported in an ASX statement.
Macmahon is pursuing increased contract rates to recover the additional cost of operating under the changed conditions.
The company has, regardless, elected to continue to perform the Telfer contract, which is expected to run until January 2023. Macmahon may recognise a provision in the order of $25-35 million to cover the costs of continuing the contract as they may exceed the economic benefit of the contract.
Finnegan said the decision to commence the formal dispute resolution process was not taken lightly.
“While it is unfortunate we could not agree an acceptable resolution with Newcrest, we remain confident in our position and optimistic the dispute process will ultimately result in an improved outcome for Macmahon,” he said.
“Importantly, this development does not affect our business strategy, and our positive outlook has not changed. The company is in a solid financial position, with strong earnings this year and further growth expected in the 2020 financial year based on the company’s secured order book.”
Macmahon reiterates its previously published 2019 financial year guidance of underlying earnings before interest and taxes (EBIT) of $70–$80 million, excluding the one-off provision for the Telfer contract.
The development on the Telfer contract did not impact on the company’s expectation of underlying EBIT growth in the 2020 financial year, according to Finnegan.