Rising costs have been a growing problem for businesses during the current boom, and Mid West iron ore miner Mount Gibson Iron has added a new kind of cost blow-out to the mix.
Rising costs have been a growing problem for businesses during the current boom, and Mid West iron ore miner Mount Gibson Iron has added a new kind of cost blow-out to the mix.
The company announced last week that it had started providing “freight relief” to its international customers to compensate for higher shipping rates and port charges.
“Very high shipping freight rates for bulk materials worldwide due to market demand for large vessels and limited supply has imposed cost pressure on MGI’s Chinese customers,” the company said.
“Elevated Geraldton Port charges add a further cost burden to our customers which resulted in MGI providing requested freight relief during the December quarter.”
Managing director Luke Tonkin said the freight relief, which he expected to be temporary, was the main reason Mt Gibson’s realised price of ore was $3.05 per tonne below forecast.
The provision of freight relief has added to the increasing cost pressures facing Mt Gibson, which said shortages of skilled labour and rising costs continued to present a “significant challenge”.
“A shortage of appropriately qualified labour and the increase in labour and consumable costs within the industry continues to dampen the operational potential of Tallering Peak and skilled labour shortages represent a risk to sustained operational performance,” it said.
Mr Tonkin said Mt Gibson was pursuing remedial measures, including buying larger drilling rigs that require less staff.
He said the company had also accepted the reality of higher staff turnover, and was not bidding up labour rates to try and halt staff departures.
Another company facing cost pressures is Brisbane-based Energy Developments.
It has reported higher costs and delays at its $230 million West Kimberley power project, which involves construction of five new power stations and a liquefied natural gas plant at Karratha.
The company said completion of the LNG plant had been delayed due to the demands on construction materials and labour resources as a result of the construction boom in the region.
As a result, the start-up of the Broome and Derby power stations would be delayed by between one to three months to June 2007.
Energy Developments managing director Chris Laurie said the delays and the pressure on costs due to the construction boom would lift total project costs by about 10 per cent.
BHP Billiton provided a global perspective in its December quarter report, issued late last week.
“While the majority of BHP schedule, tight labour markets and shortages of equipment and supplies continue to be evident across the resources industry globally and will continue to impact project costs and schedules,” the company said.
The biggest cost blow-out has occurred at its Ravenstorpe nickel project. The budget has twice been revised and is now expected to be $2.8 billion or double the original estimate.
“Lower than expected labour productivity and late delivery of some materials and equipment at Ravensthorpe means that the target date for first metal is now the first quarter of calendar year 2008,” it said.
The alumina sector appears to be a major problem.
BHP Billiton said the cost of expanding a refinery in Brazil was expected to increase by 40 per cent, while Canadian company Alcan said the cost of expanding its Gove refinery in the Northern Territory had been revised for a second time to $3 billion.
BHP Billiton also said a number of oil and gas projects were under cost pressure.
This was reflected in last year’s 21 per cent cost increase at the North West Shelf venture’s train 5 expansion project, now budgeted to cost $2.4 billion.
The good news for BHP Billiton was that its iron ore expansion projects in the Pilbara and Brazil were on budget and on schedule.
