BHP's Ravensthorpe budget blows out to $2.8bn

BHP Billiton Ltd's Ravensthorpe nickel project budget has blown out to $2.8 billion, more than double the $1.35 billion approved in March 2004, when the green light was given.

The resources giant blamed lower than expected labour productivity and late delivery of some materials and equipment for the budget increase, the third time the company has revised its predicted costs for the project.

The news comes one month after the retirement of BHP Billiton stainless steel materials chief Chris Pointon, who had headed the group since BHP's merger with Billiton in 2001.

The first recorded blowout in the project occurred in August 2005, when the company revised the costs to $1.7 billion.

Then in July this year, BHP warned that cost pressures would result in a 30 per cent increase in the previously approved budget, bringing the expected project funds required to $2.2 billion.

On top of the cost rise, the company has revised its target production date to the first quarter of the 2008 calendar year.

New BHP stainless steel materials president Jimmy Wilson said in a statement that while market conditions have led to the increased costs, the project was still well-positioned to deliver positive results.

"At the time the original cost estimate for Ravensthorpe was prepared, the current tightness and cost escalation for labour and materials, which are especially severe in Western Australia, were not apparent," he said.

BHP Billiton's shares today closed up 38 cents to $26.23.

The full text of a company announcement is pasted below:

BHP Billiton announced today the approval of increased capital costs for the Ravensthorpe Nickel Project to a total budget of US$2.2 billion.

Lower than expected labour productivity and late delivery of some materials and equipment at Ravensthorpe means that the target date for first metal ex-Yabulu from Ravensthorpe is now first quarter calendar year 2008.

President Stainless Steel Materials Jimmy Wilson said while market conditions had led to the increased capital costs, the project was still well positioned to deliver positive results.

"At the time the original cost estimate for Ravensthorpe was prepared, the current tightness and cost escalation for labour and materials, which are especially severe in Western Australia, were not apparent.

"Production is eagerly sought in a market which requires additional nickel units to keep pace with continuing strong demand. Ravensthorpe and the expanded production from Yabulu are well placed to meet part of this demand," Mr Wilson said.

The design of Ravensthorpe benefits from an extensive understanding of existing nickel acid leach operations. The design and much of the equipment and materials have undergone extensive pilot plant testing. Scale-up factors are conservative by normal industry standards.

"We have done a lot of work to ensure that the plant will operate as designed, and that we can ramp up production at a rate which will enable nickel to be delivered to customers as early as possible," Mr Wilson said.

Construction at Ravensthorpe is now approximately 73 percent complete with engineering and procurement activities now finalised and offsite fabrication 97 percent complete. The Yabulu refinery expansion is approximately 87 percent complete and on schedule for mechanical completion by the end of calendar year 2006.

Ravensthorpe Nickel is an integrated mine and primary processing facility now under construction at Ravensthorpe, Western Australia, located 570 kilometres by road from Perth and 155 kilometres west of Esperance.

The project involves open pit mining from three adjacent ore bodies, and a hydrometallurgical process plant to treat both limonite and saprolite ores to produce up to 50,000 tonnes per annum of contained nickel and 1400 tonnes of contained cobalt in a mixed intermediate product for further processing at BHP Billiton's Yabulu nickel refinery in Queensland, Australia.