Macmahon to renegotiate Telfer contract

Macmahon Holdings has flagged the possibility of a $25 million to $35 million provision against its contract at the Telfer gold project amid ongoing negotiations with the project’s owner Newcrest Mining.

Despite the potential non-cash impariment, the contractor's shares jumped 14.7 per cent to close trade at 20 cents.

In a statement, Macmahon said Newcrest agreed to enter into facilitated, good faith negotiations regarding Macmahon’s life of mine mining contract at Telfer.

“Macmahon (is) seeking an amendment to the contract rates as a result of changes in the mine plan and works programme,” it said.

Macmahon first commenced the Telfer contract in February 2016 and said despite difficulties with the project it achieved an operational turnaround in 2018.

“However, without a rate increase being agreed by Newcrest or some other form of contract amendment, the mine plan and programme changes have a negative impact on Macmahon’s costs and returns from the project.”

The negotiation process will conclude no later than August 5, and the contractor said if a resolution does not eventuate from the negotiations it would require mediation and potentially litigation.

If the discussions remain ongoing at Macmahon’s next reporting date, the company said it would recognise a non-cash provision of between $25 million to $35 million.

The Telfer contract is expected to be completed in early 2023.

Excluding any one-off provision for Telfer, Macmahon said it reiterates its previously published earnings guidance for this financial year of underlying earnings before interest and tax of between $70 million and $80 million.

It also expects earnings growth for the 2020 financial year, due to a strong order book, and said its $170 million Boston Shaker underground mine contract at the Tropicana project has renewed interest in its underground mining division among potential clients.

Michael Finnegan chief executive said Macmahon was a strong business and was well placed to continue growing.

“Our business is in very good shape, with a strong balance sheet and generating healthy results,” he said.

“We are in a great position to compete for new work and we are gathering real momentum in the underground mining market.

“We look forward to updating shareholders further with our full year results in August.”