SNCAF - Codelco Tears Up Contract With SNC-Lavalin
State-owned Chilean copper miner Codelco has torn up its US$260-million contract with Canadian engineering and logistics firm SNC-Lavalin (TSX:SNC,OTC Pink:SNCAF), sensationally accusing the company of “serious, repeated and evident breaches” in works at the Chuquicamata mine.
In a release on Monday (March 25), Codelco said it was terminating the agreement it had signed with SNC-Lavalin in 2016 for upgrades to be carried out at Chuquicamata’s smelting facilities, though the Canadian company has been working at the mine since 2012.
“Among the non-compliances, are the delay in payments to its subcontractors, delays in the execution of the project and problems in the quality of the works, among others,” said Codelco in its release.
The Chilean government had previously noted that SNC-Lavalin’s “problems at an international level” had delayed works.
SNC-Lavalin confirmed that Codelco had ended the agreement, saying that it was “appalled and surprised” by the decision.
Its surprise, said SNC-Lavalin, came because the two companies “had reached an agreement in good faith on February 1st, 2019 regarding the full completion of the project and a process for a fast track dispute resolution of previously announced unresolved issues through accelerated arbitration.”
The termination would as a result put the project’s completion at risk, warned the Canadian company, which threw blame back on the state miner.
“It should be noted that Codelco has reached this decision after SNC-Lavalin openly informed Codelco of the status of the execution of the works, as requested by Codelco, which showed delays caused by site conditions that were the responsibility of Codelco, and the poor and unjustified acts by the main construction subcontractors.”
Codelco also pointed to negotiations in February over issues at the plant, though its side of the story is of course, that it had been attempting to fix any issues after having raised them with SNC-Lavalin.
Codelco said that it expected to have full control of upgrade works at the plant within the next two to three weeks, and it expected to begin commissioning of the acid plant by the end of April.
For its part, SNC-Lavalin said it would be packing up and going home, while “preparing the dispute resolution actions to recover as much as possible of the previously announced losses that are due directly to our client and to poor subcontractor performance.”
Shares in SNC-Lavelin on the TSX have been down by 4.51 percent since Codelco sent it packing, though for the Canadian company, problems at home have proven far more bruising, as its part in allegations of obstruction of justice swirling around the Canadian Prime Minister have so far consumed its media profile.
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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.