Macmahon Commences Phase 2 at Batu Hijau

A rope shovel is trammed into service as Phase 2 begins at Batu Hijau in Indonesia.
Macmahon, a large mining contractor, has commenced Phase 2 of the Batu Hijau contract in Indonesia. Macmahon has been operating under a cost-plus arrangement (Phase 1) since the start of the contract last year. The progression to Phase 2 marks the commencement of the gain share/pain share mechanism in the agreement, whereby any cost savings or overruns will be shared between the parties. Macmahon CEO, Michael Finnegan said he was very pleased with the operational progress made to date, saying the workforce transition had involved minimal delays to production.

“This transition has been a significant undertaking, but our previous experience in the region and our close working relationship with PT AMNT has meant that we have been able to ramp up largely in line with our schedule,” he said. “Moving to Phase 2 is a significant step forward and I could not be happier with the quality and expertise of the personnel we have on the ground.”

As part of the preparation for transition to Phase 2 of the Mining Contract, an assessment of the procurement options available to the project was completed in order to maximize cost savings opportunities. This exercise identified the benefit of implementing a joint Macmahon and AMNT procurement team to leverage pre-existing site supplier arrangements where they could deliver the most cost-effective outcome. As a result, the parties have agreed to adjust part of Macmahon’s remuneration structure from a percentage-based margin, to an agreed management fee of comparable value, reset annually.

Macmahon emphasized that the reference to a comparable overall financial return relates to the expected net present value (NPV) of the Batu Hijau contract as described in Macmahon’s Notice of General Meeting dated June 9, 2017. Finnegan said the adjusted structure would further assist the project team to achieve best for project cost outcomes whilst protecting Macmahon’s expected financial returns.

As featured in Womp 2018 Vol 05 -