CONTRACTOR GR Engineering is locked in a battle with Allied Gold over the plant expansion and refurbishment of the Gold Ridge project in the Solomon Islands.

A dump truck at the Gold Ridge mine in the Solomon Islands. Image courtesy of Allied Gold.

Last year GR launched proceedings against Allied to recover outstanding costs and damages of around $A4.5 million relating to the $64 million engineering, procurement, construction and management contract for Gold Ridge awarded to GR in May 2010.

Allied launched a counterclaim in October 2011 alleging defects in the work completed under the contract.

Then last month Allied served GR with a further amended defence and counterclaim to account for gold losses related to the alleged defects, seeking $25 million in damages.

Gold Ridge produced 51,054 ounces of gold last year but Allied carried out a review in December to lift output to the targeted annual rate of 105,000oz.

Production for the March quarter was 19,056oz gold and the company maintained a guidance of 105,000oz gold production this year.

GR said the claims were inconsistent with previous announcements made by Allied regarding the project’s completion on time and on budget.

“Given that Allied Gold has made no public announcements to the contrary at all and certainly no public statements of any substantial loss of gold from the Gold Ridge plant, the company is surprised by these fresh allegations,” GR said in a statement.

Yesterday the arbitrator finalised formal orders giving leave to Allied to bring the new counterclaim.

The arbitration is scheduled for November and GR said it would vigorously defend the counterclaim.

“GR Engineering will aggressively protect its reputation and excellent track record through a vigorous defence of what we consider to be an ambit counterclaim,” GR managing director Joe Ricciardo said.

Argonaut this morning maintained a buy recommendation for GR but said there would be little in the way of catalysts in the near term.

“We continue to remain cautious with regard to companies exposed to the earlier stages of the mining life cycle and expect delays to investment decisions in the current environment,” Argonaut said in a morning note.

“Despite a significant potential work pipeline, little is locked away to underpin our FY13 revenue forecast for GNG.

“This remains our biggest concern, although these proceedings bring an additional, unwelcome worry.”

On a positive note, Argonaut said GR’s strong cash balance of around $51 million, its solid track record and strong exposure to gold worked in the company’s favour.

Allied shares, which also trade in London, were unchanged at $1.67, while GR remained at $1 after dropping 5c yesterday.

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