Fortescue Metals Group wants permission to push more iron ore into the market ahead of Iron Bridge completion

Fortescue Metals Group doesn’t want to wait for the completion of its $US3.6bn Iron Bridge project to lift export rates from Port Hedland.

Fortescue Metals Group chief executive Elizabeth Gaines atop a shiploader at the iron ore miner’s Port Hedland facilities.

Fortescue Metals Group is seeking approvals to put another 22 million tonnes of direct shipping ore a year into the market as the company looks to replace lost exports caused by delays and blowouts at its Iron Bridge magnetite project.

The iron ore major has approval to ship 210 million tonnes of iron ore from its Port Hedland berths, but its current permissions only allow it to move 188 million tonnes of hematite – or direct shipping ore – from its port operations, with the remaining tonnage reserved for magnetite produced at Iron Bridge.

Documents filed with the WA state government show Fortescue is now seeking to have the 188 million tonne cap on hematite exports removed, allowing the company to lift exports of its traditional lower grade iron ore products as it waits for Iron Bridge to come online.

Iron Bridge was originally due to enter the market by the end of June, but is now badly behind schedule and not likely to be at full production until the end of September 2024.

Fortescue chief executive Elizabeth Gaines said on Wednesday there have been no fresh delays or blowouts at the giant magnetite operation, saying construction costs were still running within the revised $US3.6bn to $US3.8bn budget, and first exports were still expected by the end of March 2023.

But while Fortescue will not report is full-year production figures until July 28, analyst estimates suggest the company’s operations are already running at a rate that would push the company against its hematite export limit, with Macquarie analysts on Wednesday tipping the company to have shipped 188 million tonnes for the financial year, or about 95 million tonnes in the six months to the end of June.

Export limits at Port Hedland are calculated on a calendar year basis, so there is no risk that Fortescue would be forced to throttle back shipments in the near future, even if permission to relax the hematite export caps is not granted.

But its relaxation could allow the company to substantially increase its shipments ahead of the completion of Iron Bridge, if the mine plans at Fortescue’s other operations allow, as the company scrambles to complete the magnetite mine in the face of a looming new wave of Covid cases as new variants spread, and as WA’s skills crisis pushes up costs and hits the ability of other miners to press ahead with their own projects.

Export limits at Port Hedland are calculated on a calendar year basis, so there is no risk that Fortescue would be forced to throttle back shipments in the near future.

Fortescue made the application in March, when the price of iron ore was averaging about $US140 a tonne.

But fears of a slowdown in the Chinese economy, caused by lockdowns in key industrial districts as Beijing follows its zero Covid policy, have caused a sharp fall in the value of the steelmaking commodity.

Iron ore has traded around $US110 a tonne over the last week, and Macquarie analysts noted on Wednesday blast furnace capacity and operating rates at Chinese mills are still falling, suggesting more capacity is being idled.

“Major ports’ iron ore inventory stabilised with a 0.2 per cent rise last week to 126.6mt, while daily offtake volumes increased 2 per cent. However, Macquarie’s Commodities Strategy team recently highlighted that the mills are on low iron ore stocks following the recent inventory drawdown,” Macquarie analysts said on Wednesday.

Any move by Fortescue to lift exports of its direct shipping ore would come as its Pilbara competitors look to do the same. Rio began shipments from its new Gudai-Darri mine last month, with the new operation to ramp up over the next year, lifting both Rio’s volumes and the quality of its exports.

BHP, also, is looking to push up its own Pilbara exports rates on an incremental basis. Gina Rinehart’s Roy Hill is also lifting export rates, and Mrs Rinehart’s Hancock Prospecting has sought approval to build a new 20 million tonnes a year mine on her Mulga Downs Pastoral Station – although that would not likely enter production until about 2025.

In addition, Hancock and Mineral Resources are studying options for port and rail facilities that could open up new Pilbara iron ore districts, again potentially adding tens of millions of additional export tonnes to the market.

Whatever additional shipments Fortescue may be able to make of its hematite ore, however, the main game for the company remains the completion of Iron Bridge. The magnetite operation, when complete, will not only add 22 million tonnes of additional ore to global markets, but its 67 per cent iron concentrate will dramatically improve the average quality of Fortescue’s exports.

When approved in 2019, Iron Bridge was estimated to cost $US2.6bn and was due to ship its first ore by mid-2022 and ramp up to full production within a year.

Fortescue now says it will cost up to $US1.2bn more than first planned, with first ore shipped in the March quarter of 2023 followed by an 18 month ramp-up to full production.

Ms Gaines said on Wednesday those estimates remained in place.

“The project continues to make significant progress with module fabrication complete and the final module ship en route to Port Hedland. All critical path items have already been delivered to the site,” she said.

Fortescue shares closed up 10c, 0r 0.6 per cent on Wednesday at $16.99.