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), 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 is terminating the agreement it 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 has ended the agreement, saying that it is “appalled and surprised” by the decision.

Its surprise, said SNC-Lavalin, is 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 will, 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 that it had been attempting to fix any issues after having raised them with SNC-Lavalin.

Codelco said that it expects to have full control of upgrade works at the plant within the next two to three weeks, and it anticipates beginning commissioning of the acid plant by the end of April.

For its part, SNC-Lavalin said it will 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-Lavalin 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 Canadian Prime Minister Justin Trudeau 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.