The failure of construction company Forge Group has forced Roy Hill’s major contractor, Samsung C&T, to consider alternative ways to continue work on the iron ore project, including the possibility of taking over the work Forge can no longer complete.
A Samsung spokeswoman said today the company was considering a number of options regarding the $1.47 billion joint venture contract it awarded to Forge and Spanish contractor Duro Felguera, but that a decision had not yet been made.
It is believed other possibilities include appointing a new contractor or giving more work to Duro Felguera.
As the number of retrenched Forge employees hits 1,470, Samsung is one of several companies currently deciding how to complete contracts awarded to Forge.
Forge had a number of multi-million dollar construction and engineering projects with mines and power stations in Australia, including an $830 million contract with the Roy Hill iron ore mine, and three contracts worth $450 million with Rio Tinto iron ore for work on one of its mine and two of its power stations.
All but two of these contracts were cancelled almost immediately after Ferrier Hodgson was appointed administrator by Forge’s directors and KordaMentha was named receiver by ANZ last week.
One was with Horizon Power for the construction of its South Hedland power station, and the other was with Queensland’s Diamantina power station, where cost overruns led to the beginning of Forge’s downfall late last year.
Over the weekend, Forge receivers KordaMentha said it couldn’t agree on how to complete its power station construction contract with Horizon, resulting in 70 Forge workers at that site losing their jobs.
It’s believed 40 to 50 Forge workers remain at Diamantina for now.
BHP Billiton, which awarded a $100 million contract to Forge to help build its Yarnima power station, said it was not commenting on the contract, but it is believed to have contingency plans in place.
Rio Tinto said it was in consultation with Ferrier Hodgson because despite a statement by KordaMentha saying all but the Diamantina contract were cancelled, Rio had not cancelled its contracts.
A Rio Tinto spokeswoman said it wanted to ensure the work Forge had been in the process of delivering was completed with minimal disruption to its Pilbara iron ore expansion operations.
"Regarding our Forge contracts it is still too early to definitively gauge the impact on the (expansion) schedule," a Rio Tinto spokeswoman said.
"It is not yet clear what decisions the administrator will make regarding the company, its assets or work-in-progress."
Horizon Power and Spanish contractor Tecnicas Reunidas, which awarded a $70 million contract to Forge to build the Burrup ammonium nitrate plant, could not be contacted for comment.
Ferrier Hodgson, which announced it is acting in a largely subordinate role to KordaMentha, will hold the first creditors meeting in Perth this Friday.
Also during the weekend, labour hirer Skilled Group began a process of rehiring almost 100 Forge workers who worked at Roy Hill, at the behest of Samsung C&T.
While the measure is considered to be a stop-gap, Samsung has yet to announce a permanent solution.
Roy Hill said today that Samsung was working to get things back on track very quickly and it was confident its long-term interests would not be affected.
“Continuity of construction is important,” a Roy Hill spokesman said.
A Samsung spokeswoman said fallout from the Forge situation would not affect its previously stated plans to award one more engineering, procurement and construction subcontract, which is due to be announced in the “very near future”.
So far Samsung has awarded six EPC contracts worth $3.34 billion, and $43 million worth of contracts to two design firms, the largest of which was to Forge and its JV partner.
When it was appointed in March last year, Samsung said the value of its contract from Hancock Prospecting was $5.59 billion.
The project has progressed considerably while Roy Hill awaits debt financing of $US7 billion, with 1,700 workers on site already and a number of infrastructure facilities in place, including an airport and workers' accommodation.
Japanese trading house Marubeni revealed earlier this month that three large Japanese banks were in the final stages of negotiating a debt finance deal.
Hancock Prospecting has a 70 per cent equity interest in Roy Hill, with the rest split between Marubeni, South Korean steel company Posco, and Taiwan’s China Steel Corporation.
Major Forge contracts
$830 million of $1.47 billion JV Roy Hill iron ore
$420 million APA Group and AGL Energy Diamantina power station
$280 million Rio Tinto Cape Lambert power station
$125 million Horizon Power South Hedland power station
$100 million Rio Tinto Yandi iron ore
$100 million BHP Billiton Yarnima power station
$70 million Tecnicas Reunidas Burrup TAN ammonium nitrate plant
$70 million Rio Tinto West Angelas power station
