Fortescue cost blowouts see Greg Lilleyman exit, CEO and CFO bonuses cut
Another top Fortescue executive is set to exit as CEO Elizabeth Gaines’ annual bonus is cancelled in the wake of major blowouts.
Fortescue chief operating officer Greg Lilleyman has left the company on the back of a $US650m ($834m) blowout at the company’s Iron Bridge magnetite project, joining director of projects Don Hyma and the Iron Bridge project manager in exiting the miner in the wake of the blowout.
And chief executive Elizabeth Gaines did not rule out pausing development of the giant project, after Fortescue said that the 22 million-tonne-a-year magnetite mine, while still an “excellent” project, “must benefit from a complete technical optimisation and instilling proven leadership” before it advanced further.
Ms Gaines said the departure of Mr Lilleyman and the project’s management team was not related to any allegations of improper personal behaviour or mismanagement of money.
While she would not give specific reasons for their departure, she confirmed “communications issues” over problems at Iron Bridge were a factor in the decision.
“There has been some breakdown in communication, and that goes to the overall culture. Which is not our culture, our culture is actually to share. That’s very important to our culture. So there has been some breakdown in communication,” she said.
The Australian revealed on Monday that Mr Hyma and Iron Bridge project director Manie McDonald left the company last week, as it struggles to get costs at the project under control.
Ms Gaines and chief financial officer Ian Wells will also lose their annual bonuses for the year over the blowout, in a year in which Fortescue is expected to deliver record profits.
Fortescue confirmed last month that costs and scheduling for Iron Bridge were “undergoing a detailed review” as the company finalised engineering work.
It is unclear when Fortescue first realised costs were spiralling out of control at Iron Bridge, but industry sources say its most senior leadership team, including Mr Lilleyman, were unaware of the extent of problems until they reached a critical point in January.
Fortescue is expected to release details of the cost blowouts with its half-year financial statements on Thursday, but is believed to be facing overruns that could top 25 per cent of the project’s initial $US2.6bn budget, or about $US650m.
Fortescue has previously cited the strength of the Australian dollar for adding to rising operational costs in Western Australia, along with competition for skilled workers amid border lockdowns that were making it more difficult to source staff from interstate.
Ms Gaines said it had become clear Fortescue had lost sight of the “critical focus” on controlling costs.
“At Fortescue, our commitment to our values and culture is our highest priority. What we’ve learned through our review of the Iron Bridge project to date is that we have lost sight of that critical focus,” she said in a statement.
“As CEO I must also take accountability and learn from this. Both Ian Wells and I will forgo all incentive payments this financial year.
“We take this opportunity to reset the company’s focus on our culture and values which defines us and makes Fortescue a truly great company.
“We have a huge depth of talented individuals with Fortescue DNA across the business who will all contribute as we continue our industry-leading operational performance.”
Mr Wells is also believed to have told Fortescue staff at a meeting on Wednesday to discuss the leadership changes that he had failed to thoroughly communicate some of Fortescue’s hedging positions to the company’s board before they soured.
Ms Gaines thanked Mr Lilleyman for his service to Fortescue, crediting him with operational improvements that have cut its costs and improved the quality of its iron ore products.
“I would like to thank Greg Lilleyman for his enormous contribution since he joined Fortescue in January 2017. The success of our integrated marketing and operations strategy is a lasting legacy of Greg’s strategic focus and his commitment to our success over that period,” she said.
Iron Bridge includes an ore-processing facility capable of producing 22 million tonnes of concentrate a year, an airstrip and accommodation camp, a 135km pipeline to Port Hedland to pump magnetite slurry to the port and return water to the mine, as well as another 195km pipeline to source water from borefields in the Canning Basin.
Fortescue originally planned to ship the first ore from Iron Bridge by mid-2022, with the mine designed to deliver 22 million tonnes when it is fully ramped up.
The mine is a key element of Fortescue’s plan to move its iron ore up the value chain by producing higher-grade ore and moving its average shipment grade above 60 per cent iron.
It could also eventually provide a feed for the “green steel” plan unveiled for Fortescue by chairman Andrew Forrest last month, with the company planning to build a pilot plant in WA by the end of 2021, and a commercial plant within a few years.
Taiwan’s Formosa Plastics owns a 31 per cent stake in Iron Bridge, and the Fortescue subsidiary that controls the project is 12 per cent-owned by China’s Baowu.
Fortescue shares fell after the announcement of Mr Lilleyman’s departure, closing down 73c, or 2.9 per cent, at $23.70.
