Miner Fortescue lifts cost estimate again, delays start of Iron Bridge project

MELBOURNE (Reuters) -Australia’s Fortescue Metals Group raised the cost estimate for its Iron Bridge magnetite project for the second time this year on Friday, citing the impact of inflation on expenses and labour constraints to push back first production. The company set Dec. 2022 as the new date for the start of production from the centrepiece of its plan to boost margins by meeting China’s demand for high-grade ore, a timeline that is six months later than its February estimate.

FILE PHOTO: The logo of Australia's Fortescue Metals Group (FMG) can be seen on a bulk carrier as it is loaded with iron ore at the coastal town of Port Hedland in Western Australia, November 29, 2018. REUTERS/Melanie Burton

The world’s fourth-largest iron ore miner said it now expected the project, a joint venture with China’s Formosa Steel and Baosteel Resources, to cost between $3.3 billion and $3.5 billion, up from $3 billion estimated three months ago.

Higher costs were a touch under what some analysts had modelled, said analyst Kaan Peker of RBC, who added that Fortescue’s upward revision of costs per tonne, by about $3, chiefly for transport and ports, might not suffice.

“That would have been a bit of a disappointment in terms of consensus. Also their ramp-up timeframe has been pushed out,” he said.

RBC expects the ramp-up to 22 million tonnes to take two to 2-1/2 years, he added, longer than the 12 to 18 months that Fortescue expected.

Chief Executive Elizabeth Gaines said she was confident Fortescue would meet the new guidance on costs and timing.

“We now have a very robust capital estimate and a robust schedule,” Gaines told a media call. “We will be working very hard to reach that 12 month ramp-up.”

The cost increase came in part from Fortescue’s decision to use a 135-km (84-miles) pipeline to pump concentrate slurry to Port Hedland from Iron Bridge, rather than modifying its railway, as well as pricier labour and materials, she said.

The miner has secured a separate port for delivery to resolve its problem of receiving large pieces of modular equipment into crowded Port Hedland.

The project incurred costs of $1.5 billion by the end of April, with the Australian miner bearing a major chunk of the expenses, which it also blamed on unfavourable foreign currency rates.

Senior company executives resigned in February after a project review following media reports over a cost blowout of as much as 25%.

Fortescue, which had planned first production from Iron Bridge in the first half of 2022, said it is still expected to deliver 22 million tonnes a year of high-grade 67% Fe magnetite concentrate.

Its shares were up 0.2%, with the benchmark index up 1.2%.

Reporting by Melanie Burton in Melbourne and Nikhil Kurian Nainan in Bengaluru; Editing by Clarence Fernandez