Heron Resources (ASX:HRR) is disputing a AU$49.9-million claim from Sedgman, a subsidiary of CIMIC Group (ASX:CIM), for additional costs related to the construction of Heron’s Woodlawn zinc-copper project.

According to a statement from Heron, the claim for the additional costs exceeds an agreed guaranteed maximum price of AU$109 million for Sedgman’s engineering, procurement and construction (EPC) contract at Woodlawn.

The two companies entered into a front-end engineering and design study in November 2016 to refine the design and price point of Woodlawn’s construction, followed by the EPC contract in May 2017.

The EPC contract was for a 1.5-million-tonne-per-year mineral processing plant for underground and tailings ore for zinc, copper and lead concentrate production.

“The company is extremely disappointed to receive a claim of this magnitude when the construction timeline is effectively complete, and it would appear to run contrary to the underlying principles of a guaranteed maximum price style of EPC contract which are well understood within the wider resources industry,” a statement from Heron reads.

Within the next 10 business days, the contract superintendent will assess Sedgman’s claim against Heron; the company added that it has made all due payments agreed upon under the EPC contract.

Commissioning activities began at Woodlawn in December 2018, including those related to the processing plant, with first production docketed for Q1 2019. Going forward, the company plans to keep focused on development and commissioning activities.

Plant construction at Woodlawn is 95 percent complete.

Woodlawn, located in New South Wales, boasts an initial 9.3-year mine life based around the asset’s reserves, and an annual production target of 40 kilotonnes (kt) of zinc in concentrate, 10 kt copper in concentrate and 12 kt lead in concentrate.

Heron’s share price took a 15.08-percent dive on Monday (February 4) after the announcement, closing at AU$0.535 on the ASX.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.