Fortescue to stem pipeline cash flow as Iron Bridge costs blow out
Fortescue Metals Group is considering shifting a major cost component of its Iron Bridge Magnetite Project off its own books.
Fortescue Metals Group is considering shifting a major cost component of its Iron Bridge Magnetite Project off its own books as it grapples with a cost blowout at the project, floating the prospect of asking contractors to finance construction of a water pipeline.
Fortescue confirmed a $US400m ($520m) blowout at Iron Bridge in its half-year accounts last week, putting a “preliminary total investment” of $US3bn on the development of the 22 million tonne a year iron ore operation.
The company said a final cost figure was likely to be available in three months 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.
It also flagged a review “contractor selection and strategy” at the project.
Since reporting its financial results on February 18, Fortescue has been holding meetings with contractors that have already won work at the project, industry sources say, seeking cost savings and putting contractors on notice their existing agreements could be scrapped when the technical review is complete.
Industry sources say the company’s review team has also floated the prospect of taking borefields, pumping stations and about 200km of buried pipeline, needed to draw up to 20 gigalitres from aquifers to the processing plant, off the company’s books, sounding out the market for companies prepared to wear the cost of building the water network and eventually sell it back to the mining major.
Moving to a build-own-operate-transfer model could strip more than $300m from the costs of building the pipeline, industry sources say, but add to operating costs in the short term.
It is understood Fortescue had initially budgeted up to $600m for the separate 135km slurry pipeline, and a return pipe to carry water, but sources say that estimate is well below likely current industry rates.
It is unclear whether such cost shifting measures have already been included in the revised $US3bn capital cost of Iron Bridge, and Fortescue chief executive Elizabeth Gaines declined to comment in detail on discussions with contractors while the review was ongoing.
“A key focus of the technical and commercial assessment of the Iron Bridge Magnetite Project is a review of the magnetite concentrate transportation solution and return water pipelines to Port Hedland, including opportunities to utilise our existing rail and port infrastructure. A number of initiatives are being assessed during this early stage of the 12-week period for consideration,” she said in a statement on Sunday. “Iron Bridge represents a strategic investment enabling Fortescue to deliver a full product portfolio to the market. We are drawing on the innovative and technical expertise of the whole Fortescue team as we undertake the project assessment, including contractor strategy and selection, over the coming weeks.”
It is believed Fortescue’s discussions with construction contractors have been focused on the need to source labour from inside WA after sudden border closures amid coronavirus outbreaks in NSW, Queensland and Victoria over the past few months caught miners, contractors and workers on the hop and disrupted the flow of skilled workers into WA.
Fortescue has already spent $US1.1bn ($1.43bn) at Iron Bridge, according to its half-year accounts, but is approaching the more complex end of the project as it looks to build the processing plant and mining infrastructure.
The iron ore major has also flagged problems at Port Hedland, where limited inbound port infrastructure will constrain its ability to bring heavy construction modules, mostly built in China, into WA. Fortescue shares closed on Friday at $24.11.
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