MELBOURNE, May 28 (Reuters) - Australia's Fortescue Metals
Group raised the cost estimate for its Iron Bridge
magnetite project for the second time this year on Friday,
citing the impact of inflation on expenses and labour
constraints to push back first production.
The company set Dec. 2022 as the new date for the start of
production from the centrepiece of its plan to boost margins by
meeting China's demand for high-grade ore, a timeline that is
six months later than its February estimate.
The world's fourth-largest iron ore miner said it now
expected the project, a joint venture with China's Formosa Steel
and Baosteel Resources, to cost between $3.3 billion and $3.5
billion, up from $3 billion estimated three months ago.
Higher costs were a touch under what some analysts had
modelled, said analyst Kaan Peker of RBC, who added that
Fortescue's upward revision of costs per tonne, by about $3,
chiefly for transport and ports, might not suffice.
"That would have been a bit of a disappointment in terms of
consensus. Also their ramp-up timeframe has been pushed out," he
RBC expects the ramp-up to 22 million tonnes to take two to
2-1/2 years, he added, longer than the 12 to 18 months that
Chief Executive Elizabeth Gaines said she was confident
Fortescue would meet the new guidance on costs and timing.
"We now have a very robust capital estimate and a robust
schedule," Gaines told a media call. "We will be working very
hard to reach that 12 month ramp-up."
The cost increase came in part from Fortescue's decision to
use a 135-km (84-miles) pipeline to pump concentrate slurry to
Port Hedland from Iron Bridge, rather than modifying its
railway, as well as pricier labour and materials, she said.
The miner has secured a separate port for delivery to
resolve its problem of receiving large pieces of modular
equipment into crowded Port Hedland.
The project incurred costs of $1.5 billion by the end of
April, with the Australian miner bearing a major chunk of the
expenses, which it also blamed on unfavourable foreign currency
Senior company executives resigned in February after a
project review following media reports over a cost blowout of as
much as 25%.
Fortescue, which had planned first production from Iron
Bridge in the first half of 2022, said it is still expected to
deliver 22 million tonnes a year of high-grade 67% Fe magnetite
Its shares were up 0.2%, with the benchmark index up
(Reporting by Melanie Burton in Melbourne and Nikhil Kurian
Nainan in Bengaluru; Editing by Clarence Fernandez)