Forge emerged from a trading halt today after moving last week to quarantine Pilbara and Queensland assets from its normal business operations.

Both the Diamantina Power Station (DPS) in North Queensland and the West Angelas Power Station (WAPS) in the Pilbara have been underperforming and created a challenging liquidity position for the company next month.

“I regret having to inform shareholders of this extremely disappointing outcome,” Forge CEO David Simpson said.

“Several commercial, scope estimate and planning deficiencies have recently been identified on the DPS and WAPS projects, which contributed to the substantial erosion in profit.”

The write-down on DPS resulted from a number of factors including large cost overruns in structural, mechanical, piping and electrical works.

Forge said poor project management and the acceleration of costs required to get the development back on schedule also contributed to the losses.

For WAPS, the write-down was due to factors including the need for significant rework due to design problems, poor project management, and a large number of extension of time claims that had not yet been settled.

Both projects were tendered, bid and won by CTEC prior to Forge’s acquisition of the company in January 2012.

Forge said it had acted quickly to quarantine both assets and implement recovery plans.

The company has also renegotiated agreements with the client, suppliers, and contractors at DPS to accelerate development and allow for an extension of deadlines.

Forge said it had appointed new project directors and leadership teams at DPS and WAPS, and Simpson would take direct oversight of the developments to ensure they stayed on track.

“The scale of underperformance of these two projects and the fact that the issues came to light in such a short space of time is unacceptable to the board,” Forge chairman David Craig said.

“We have worked with senior management to take immediate action to ensure that these issues are resolved and that the projects are completed in a timely fashion.”

Forge said it expected a cash outlay of $45m would be required to complete both projects, and the majority of the costs would be incurred in November and December 2013.

As a result of the increased expenditure, Forge’s existing financer, ANZ, has agreed to a number of amendments to their agreement.

The amendments include deferral of some payments and exclusion of the one-time profit downgrade in some calculations.

Simpson said the changes would solve Forge’s liquidity issues and give it the flexibility to operate on a business as usual basis.

Along with the management restructures Forge has introduced other changes across its power division, including enhanced verification and auditing initiatives.

Forge said $15m in cost saving initiatives had been identified across the corporate and operational areas, with $10m in savings already introduced and a further $5m expected to be introduced in FY2014.

For the broader outlook, the company said it had a growing base of contracts and a significant pipeline of orders and tenders underway.

“Despite these disappointing results, we remain confident on our future prospects,” Simpson said.

Shares in Forge were last trading 83.2% lower at 70c.