Fortescue slashes value of troubled Iron Bridge project
Fortescue’s Iron Bridge magnetite mine cost 55% more to build than planned, and is now worth 30 per cent less than its initial book value.
Fortescue Metals Group’s troubled Iron Bridge magnetite project has taken another hit, with the company slashing $US1.03bn from the value of the mine, flagging another blowout in its cost, along with a hike in its long-term production costs.
Fortescue upped the total cost of delivering the 22 million tonnes a year mine to $US4bn in its annual financial results on Monday, from a previous estimate of about $US3.9bn – and its initial guidance, when the project was approved in 2019, of $US2.6bn.
And the project’s operating costs for concentrate delivered to the port are now tipped at $US45 a tonne. In 2019 that figure was the bottom end of Fortescue’s estimated all-in cost of delivering Iron Bridge magnetite to China, including sustaining capital, as well as royalties, administration costs and sea freight.
In addition to higher costs, in taking a massive impairment on the asset, Fortescue effectively flagged that the company expects to be paid less for its output than it did when giving the project the green light in 2019.
But the $US1bn impairment to the value of the asset on a pre-tax basis, made only weeks after Fortescue trumpeted the delivering of its first concentrate to international markets, raised eyebrows among analysts on Monday.
The decision effectively slashes almost 30 per cent from the book value of the mine, with Fortescue’s accounts saying Iron Bridge now only carries a fair value of $US2.43bn.
On a post-tax basis the impairment was worth $US726m, with Fortescue blaming the decision on “inflationary cost pressures increasing operating costs, increase in discount rates and the timing of project ramp-up”.
But another factor, according to the accounts, is the expected price of Iron Bridge concentrate, which grades about 67 per cent iron with low impurities. In 2019 Fortescue said the company expected to trade at a premium to the benchmark index for 65 per cent ore – over and above the additional iron content of Iron Bridge’s output.
But analysts noted on Monday that 65 per cent concentrate produced by CITIC’s magnetite project in the Pilbara was drawing little premium to the benchmark index, suggesting the premium on offer for concentrate may not play out for Fortescue either.
On Monday, new Fortescue mining boss Dino Otranto told analysts that the market was “still evolving” and still believed a premium would eventually be paid for Iron Bridge concentrate.
“This product is in huge demand right now. And we do see a premium market evolving in time as we get more of this material onto market,” he said.
Fortescue’s accounts note that every $US5 a tonne movement in the expected price of Iron Bridge concentrate, over the life of the mine, would shift its carrying value by $US568m.
More Coverage
