Preferred contractor selected
Contractor & miner to share the load in getting greenfield going
Wednesday 05 April 2017
Mining contractor Macmahon has been named as preferred mining services contractor for Qcoal’s Byerwen greenfield coal project near Glenden.
However, the agreement is conditional and possibly low yielding in the short term for both parties, despite the recovery in coal prices.
Provided QCoal can get a mining lease for Byerwen, Macmahon will provide mining services for the project through a cost reimbursable payment model. It essentially means they will complete work and then be reimbursed for those costs, with a set flat fee added on top.
Typically it’s a risky move for a miner to enter such an agreement with a contractor because the cost of completing the project is open-ended. To manage this the costs for which the contractor is entitled to be reimbursed must be set out very clearly in the contract. However, it's a complex procedure, because while some direct costs may be relatively straightforward to determine other ‘shared’ costs, might not be.
As an analyst explained to Shift Miner, it's the sort of deal where both parties take some pain up front for the greater good later on.
“This looks like the kind of contract I have seen in Western Australia,” she said.
“Basically both parties stay in business at break even, then after a hurdle rate for the owner has been attained, the service provider gets a return.
“In the interim, he covers the cost of capital and stays in business just like the mine.”
After an initial period under this arrangement, Macmahon says they will switch to a "hybrid schedule of rates and cost reimbursable model", which Macmahon Chief Executive Officer, Michael Finnegan appears to be happy with.
“This is a quality project which will deliver significant benefits to the local and State economy,” Mr Finnegan said.
“While there is still a lot of detail to be negotiated, we are buoyed by our selection as preferred contractor, which highlights our ability to compete for desirable new projects.
“If we are successful in securing this opportunity, the project will mark our re-entry into the Queensland coal market following the successful conclusion of our Cameby Downs contract in 2013 and our Eaglefield contract in 2014 where we operated for 10+ years.”
Macmahon says it will now start mobilising people and machines in anticipation of moving around 50 million bank cubic metres per year for at least three years.
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