Fortescue Metals Group cancels Pilbara construction contracts

Fortescue Metals Group has begun cancelling major construction contracts at its troubled Iron Bridge magnetite project in the Pilbara.

Work on new facilities at Fortescue’s Port Hedland operations is also believed to have been halted.

Fortescue Metals Group has begun cancelling major construction contracts at its troubled Iron Bridge magnetite project in the Pilbara as it grapples with cost blowouts at the project.

It is understood the iron ore major wrote to contractors late last week cancelling remaining work being conducted under existing contracts and ordering them to prepare to demobilise equipment and redeploy staff assigned to work at Iron Bridge.

Industry sources say work is being stopped at major earthworks contracts at the processing plant, and tailings dams, with work on new facilities at Fortescue’s Port Hedland operations also believed to have been halted.

Contracts halted include some believed to have been granted last month, as Fortescue’s most senior management became aware of likely blowouts at the massive magnetite project.

Fortescue confirmed a $US400m ($520m) blowout at Iron Bridge in its half-year accounts on February 18, putting a “preliminary total investment” of $US3bn on the development of the 22 million tonne a year iron ore operation — although industry sources say Fortescue’s internal numbers include a “worst case” scenario of a $US3.6bn total cost.

The company said a final cost figure was likely to be available in May, after completion of technical studies aimed at reducing construction costs and using its existing rail line to carry concentrate to Port Hedland rather than building a slurry pipeline.

Fortescue is believed to have told contractors operating on site that the only work that will continue during the review per­iod is engineering, off-site construction of modules for the processing plant, and preparatory work to build infrastructure at its port facilities to allow it to unload large equipment modules destined for the site.

Fortescue chief executive Elizabeth Gaines. Picture: Jane Dempster

It is understood Fortescue’s review team has also sounded out the market for a contractor prepared to build and operate borefields and pipelines needed to pump water to the project, as it seeks to move some of the constructions costs off its own books.

It would move the borefields, pumping stations and about 200km of buried pipeline needed to draw up to 20 gigalitres from aquifers to the processing plant, to a build-own-operate-transfer model, stripping hundreds of millions from Fortescue’s capital budget but raising the operating costs in the immediate term.

Fortescue has also said it is reviewing whether to build a 135km pipeline to carry magnetite slurry to Port Hedland, and a return line for water, as it considers using its existing rail network as the primary means to transport the concentrate instead.

Announcing the blowout in February, Fortescue said it was reviewing “contractor strategy and selection” after sudden border lockdowns in December and January caught the company and its labour suppliers by surprise, stranding Queensland and NSW-based construction workers on the wrong side of state borders.

While borders to both states have reopened, WA Premier Mark McGowan has been unrepentant about his strategy of closing the state’s border at the first sign of a pandemic flare-up on the east coast, and is approaching this week’s state election running on a platform of permanently reducing the number of fly-in fly-out workers used in the WA mining and construction industries.