CRS definitions in QGIS

I have a drone software package that wants to output my data in CRS 32612. QGIS seems to load and view it fine but when I extract contours from a DEM at this projection it tries to write the temporary layer to CRS 4326 which in theory would be fine but the contours are in outer space! When I try to change the contour layer to CRS 26912 or 32612 they come back in view but are not overlaying the DEM. (Miss by about 350m to the west.) I assume this is because of the magnitude of the math projecting a UTM coord it thinks is UTM back to an actual UTM.

My question is does QGIS properly handle the 326## CRS projections or am I doing something else wrong?