Heron Resources challenges Sedgman's Woodlawn claim

Sedgman, a part of the CIMIC group, originally lodged a claim for $49 million above the contracted price of $109m to build a processing plant at the zinc and copper mine, operator Heron Resources said.

But earlier this month it revised this to $53 million.

"It's a ridiculous sum," said Heron Resources managing director and chief executive Wayne Taylor.

"This is effectively 50 per cent above the contracted amount."

Heron signed up Sedgman to build the processing plant and associated infrastructure in late April 2017. Work started soon after and the plant has almost been completed.

The project is nearing completion, with "wet commissioning," or the placement of the first product through the plant in coming weeks.

But a legal dispute between the parties is brewing in the background.

Sedgman has declined to comment, but Mr Taylor said the claim was invalid.

"We've rejected it and don't believe it's payable. It is now up to Sedgman to take it further if they believe it's valid," he said.

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In a statement to the Australian Stock Exchange, Heron said it was "surprised and disappointed" that Sedgman was continuing to pursue the claim "contrary to the guaranteed maximum price contract (of $109m)".

"While we have been able to start commissioning of the process plant, the delivery of Sedgman's scope of work is behind the agreed schedule," it stated.

"Heron and its shareholders relied on Sedgman as experts in their field to deliver the project on time and on budget. They have failed on both counts. The circumstances presented to us are a source of real frustration."

Mr Taylor said the project was several months late, but still hoped to send the first product to market in coming months.

The specifics of the claim are unclear. Mr Taylor told the Post that Heron paid Sedgman $109m last October/November for its work, but Sedgman claimed extra costs last month. It came after Sedgman reported in January that the plant was "98 per cent complete," he said.

"It has identified a lot of things they say happened early in the piece. These were never raised with us until now," Mr Taylor said.

"...Some of the alleged costs even predated the contract so I don't know how they can say they were incurred on this project."

But he acknowledged Sedgman had raised a claim for an extra $11m last October for a time extension, which Heron rejected. This amount is included in the $53m.

Mr Taylor said that, under the contract, Heron had a right to interrogate details of the latest claim, but Sedgman had refused to supply these, "contrary to the contract".

Meantime, Heron's contract superintendent has assessed the $53m submission and rejected it.

"That person is required to act fairly and reasonably and we believe he has," Mr Taylor said.

He told the Post the guaranteed maximum price was agreed upon to give a high degree of financial certainty on the capital costs associated with the Woodlawn project.

The disagreement is being handled as a security of payment claim, which Mr Taylor describes as an interim step under which parties try to reach resolution.

"The ball is in their court," he said.

Meantime, Heron says Sedgman owes it liquidated damages due to the project's "late delivery" and with $10.8m held in bank guarantees, will continue to "exercise its rights under the contract".

Mr Taylor said Heron's share price fell 15- to 20 percent to 51 cents in February when Sedgman's $49m was notified to the ASX.

"We are not at all happy about the hit our shareholders are copping," he said.

Despite the disagreement, Mr Taylor said he was happy with the quality of work on the processing plant and the project would not be affected.

Heron Resources has approval to process an average 1.2 million tonnes of ore annually. The material would be trucked to Goulburn's rail hub and transported to Port Kembla and Port Botany for export. 

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