On Monday, the Monadelphous Group Limited (ASX: MND) share price plummeted 10.33% to $7.99 after the company announced that it was the subject of a legal claim by Rio Tinto Limited (ASX: RIO).
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What was in the announcement?
The claim was related to a fire which occurred on 10 January 2019 at a Rio Tinto iron ore processing facility at Cape Lambert, Western Australia. A wholly owned subsidiary of Monadelphous was contracted to perform shutdown maintenance services prior to the time the fire occurred. Rio alleged that the Monadelphous subsidiary was in breach of its maintenance contract and that this breach was the cause of the fire.
Rio Tinto have informed Monadelphous that they intend to make a claim for $493 million in loss and damages. This is comprised of $458 million from the cost of finding a temporary operating solution and business interruption arising from an alleged inability for Rio to process iron ore at the facility during the disruption. The additional $35 million of the claim was for material damage associated with reconstruction at the processing facility affected by the fire.
According to the announcement, the Monadelphous subsidiary that is facing the allegation denies Rio Tinto's claim and the losses claimed, which according to the subsidiary have not been substantiated.
Mondelphous intends to defend the claim and states that the contract between Rio Tinto and its subsidiary, which was allegedly breached, contains exclusions and limitations of liability which the subsidiary would rely on in its defence.
The announcement set out that the subsidiary, referred to as MEA, which is facing the allegations has public liability insurance in place with a total limit of $150 million. This insurance provides cover for property damage claims and associated losses. Monadelphous stated that it is "unaware of any reason why the insurance policies would not respond to indemnify MEA for liability it may have to Rio Tinto."
About the Monadelphous share price
A joint venture in which Monadelphous owns a 55% stake announced on Monday that it had secured a contract with General Electric International Inc. The contract relates to the construction of a wind farm in Victoria with the joint venture expecting to receive around $80 million from the works to be completed.
In the half year to December 2019, Monadelphous had revenue of $852 million and a net profit after tax of $28.5 million.
The Monadelphous share price is up 0.5% from its 52 week low of $7.95, however, it has fallen 51.98% since the beginning of the year. The Monadelphous share price is down 55.31% since this time last year.
