Fortescue reviews magnetite project cost
Amid blowout fears, Fortescue in ‘detailed review’ of massive Pilbara magnetite mine, as cash rolls in from iron ore.
Fortescue Metals Group has confirmed the total cost of its massive Pilbara magnetite project is “undergoing a detailed review” as the cash continues to roll in from bumper iron ore prices.
Fortescue delivered its December quarter production report on Thursday, saying it received an average $US121.84 a tonne for its product in the period, the highest average price for its iron ore since the same quarter in 2014. It received an average $US105.77 a tonne for its iron ore in the September quarter.
The company has already flagged after-tax profits of about $US4bn for the first half of the financial year, and said it shipped a record 90.7 million tonnes of ore in the last six months of 2020, after December quarter shipments of 46.4 million tonnes – in line with the same period in 2019.
Fortescue finished the year with $US4bn in cash, down from $US5.1bn at the end of September, after paying out $US2.2bn in dividends, $US872m in taxes and $US1bn in capital spending, leaving the company with net debt of $US100m.
But Fortescue also confirmed The Australian’s report it is struggling to control costs at its Iron Bridge magnetite mine, originally tipped to cost $US2.6bn, but which sources say could now cost up to 25 per cent more suggesting a total potential blowout of up to $US650m.
Iron Bridge includes an ore processing facility capable of producing 22 million tonnes of concentrate a year, an airstrip and accommodation camp, as well as a 135km pipeline to Port Hedland to pump magnetite slurry to its port facilities, and return water to the mine, as well as another 195km pipeline to source water from borefields in the Canning Basin.
Fortescue did not release an estimate of the potential blowout on Thursday, but confirmed it is under pressure from the high Australian dollar, and rising operational costs in Western Australia, as coronavirus movement restrictions make it more difficult to access skilled labour.
“With engineering nearing completion and the majority of contracts committed, the forecast total investment and schedule for the project is undergoing a detailed review. This will take into account the ongoing impacts of the COVID-19 global pandemic, the strength of the Australian dollar and other factors including access to resources and specialist skills,” the company said.
“Engineering progress reached 90 per cent and module fabrication commenced in Western Australia and China. The process plant bulk earthworks are 90 per cent complete with the concrete foundations well underway.”
Fortescue’s average production costs rose slightly in the December quarter, to $US12.81 a tonne from $US12.74. But the company maintained previous guidance of average annual costs of $US13 to $US13.50 a tonne, suggesting it expects cost inflation and the high Australian dollar to bite more broadly in the last half of the financial year.
The company maintained output expectations of 175 to 180 million tonnes of iron ore for the year.
Fortescue boss Elizabeth Gaines said the iron ore mine had hit key milestones on both production and its major projects in the December period.
“In December 2020 we celebrated the significant milestones of the first ore processed and commissioning train at the Eliwana mine. Delivery of this strategically important project in line with schedule at an industry-low capital intensity was a remarkable effort by the Fortescue team considering the impact of COVID-19 restrictions,” she said.
Fortescue shares were down 49c to $23.19 in early trading.