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Macmahon to sue Newcrest in seeking higher rates for Telfer contract

Macmahon Holdings Ltd. is taking legal action seeking an increase in rates for the life of mine mining contract at Newcrest Mining Ltd.'s Telfer gold project in Western Australia after the latter changed the mine plan.

CEO Michael Finnegan said the mining services provider was "left with little choice" after good faith negotiations with Newcrest started in June failed to reach a favorable resolution.

"We are disappointed we have got to this point, particularly after such extensive discussions to seek to agree an outcome," Finnegan said.

Macmahon said Aug. 6 that it is pursuing an increase in the contract rates to recover the additional cost of operating under changed conditions.

The company will continue to perform the Telfer contract, which is expected to run until January 2023.

Meanwhile, Macmahon expects to identify the Telfer contract as onerous and recognize a noncash provision of A$25 million to A$35 million in its full year results.

Excluding the one-off Telfer provision, the company forecast underlying EBIT of US$70 million to US$80 million for its fiscal 2019.

Finnegan noted that the Telfer contract issue will not impact the growth of underlying EBIT in fiscal 2020. "This development does not affect our business strategy, and our positive outlook has not changed," Finnegan said.