PERTH (miningweekly.com) – ASX-listed Heron Resources is facing a near A$50-million cost overrun at its Woodlawn base metals project, in New South Wales.
Heron on Monday reported that the company had received a A$49.9-million progress claim from contractor Sedgman, which was over and above the agreed upon A$109-million guaranteed maximum price engineering, procurement and construction (EPC) contract sum that formed the basis for the construction of the Woodlawn project.
The two companies in 2016 entered into a front-end engineering and design study, which was aimed at refining the design and price for the construction of the Woodlawn plant. In May 2017, the two companies inked the EPC contract, which included a guaranteed maximum price and cost sharing component.
Heron told shareholders that it made all payments agreed upon, and which were due under the EPC contract.
“The company is extremely disappointed to receive a claim of this magnitude when the construction timeline is effectively complete, and it would appear to run contrary to the underlying principles of a guaranteed maximum price style of EPC contract, which are well understood in the wider resources industry,” Heron said in a statement to shareholders.
The contract superintendent would assess Sedgman’s new claim within ten business days, but Heron noted that if it were to be accepted, it would result in the guaranteed maximum price being exceeded by 46%.
While the superintendent was assessing the merits of the claim, Heron would focus on progressing the development and commissioning activities as it worked towards meeting its first quarter production milestones.
At steady state, Woodlawn is expected to produce 70 000 t/y of zinc concentrates, 30 000 t/y of copper concentrates and 25 000 t/y of lead concentrates.