Silver Lake cuts contractor payments after cost dispute

Silver Lake Resources is embroiled in a dispute with Resource Development Group subsidiary Pacer, after the engineering contractor did not explain why the Murchison gold project's costs had blown out by more than $20 million.

Silver Lake announced today that it had had only partially paid a January invoice from Pacer, based on previous cost estimates for the Murchison facility.

Silver Lake had initially budgeted between $65 million and $70 million for processing infrastructure at its Murchison operation, and reported to the ASX in December it had spent $68 million.

Pacer told Silver Lake at that time the project was 92 per cent complete, but an additional $7 million would be required to complete the job.

In mid-February, Pacer revised its forecast total to $85 million without explanation.

Silver Lake said delays on construction on the back end of the plant were also becoming apparent.

In early March, Pacer informed Silver Lake that project costs had again blown out, saying its actual costs to Janaury had hit $75 million and the job would cost $92 million to complete.

Silver Lake said it was yet to receive an adequate explanation for the cost increases, and it had only partially paid a January 2013 invoice as a result.

“It is regrettable that this action was necessary,” Silver Lake said in a statement.

“However this was unavoidable in the absence of an adequate explanation by Pacer as to the management of the contract and for these un-forecast increases.”

Silver Lake said it expected Pacer to provide an explanation, but maintained it does not have any liability to pay invoiced amounts exceeding the agreed terms of the contract.

“To ensure that the remaining construction activities are being completed in a cost effective and timely manner, Silver Lake has appointed a completion manager who is located on site and will monitor activities required to complete the construction of the plant.”

Resource Development Group is being sought for comment.

At close of trade today, Silver Lake shares had sunk 16 per cent, to finish at $1.63, while RDG shares last traded at 11 cents, prior to entering a trading halt this morning.