Macmahon and Newcrest Mining have stepped into good faith negotiations over the Telfer project in Western Australia, which could lead to litigation if unsuccessful.
The contractor is seeking an amendment to the contract rates following changes in Telfer’s mine plan and works program.
Macmahon said these changes would negatively impact on its costs and returns from Telfer without a rate increase being agreed by Newcrest or some other form of contract amendment.
The company has been experiencing several issues on the Telfer project since 2018, causing it to incur “significant losses”.
The Telfer contract is a life of mine contract, with completion expected in January 2023.
Macmahon is “prepared to commence the contractual dispute resolution process” if the good faith negotiations are unsuccessful. Should the mediation be unsuccessful, the case could lead to litigation.
The company will set aside a provision of $25–35 million should discussions remain ongoing at Macmahon’s next reporting date.
Macmahon, however remains confident of its previously published earnings guidance for the 2019 financial year of underlying earnings before interest and taxes (EBIT) of $70–80 million, excluding the above one-off provision for Telfer.
The company is also expecting growth in its underlying EBIT in the 2020 financial year based on the current workload.
“Our business is in very good shape, with a strong balance sheet and generating healthy results,” Macmahon chief executive Michael Finnegan said.
“We are in a great position to compete for new work and we are gathering real momentum in the underground mining market.”
Macmahon has reportedly been receiving interest from potential underground clients since winning a contract from joint venture partners AngloGold Ashanti and Independence Group at the Boston Shaker development in Western Australia.
It is also well advanced in its discussions to acquire GBF Underground Mining Group, after confirming it was in takeover talks with the latter’s owners last month.