03/05/2005 - 22:00

FMG admission over estimates

03/05/2005 - 22:00


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FORTESCUE Metals Group has been forced to clarify to the Australian Stock Exchange both its capital cost and mineral resource estimates for developing its Pilbara iron ore project.

The cost of the project was estimated at $1.85 billion in late 2003, and in March Fortescue had made two announcements upgrading its resource estimates. However, both those figures have been clarified, according to the company’s statement. In a release to the market, the management of Fortescue has accepted that the 2003 market conditions on which the cost estimates were made no longer apply.

According to FMG, a definitive feasibility study currently under way is expected to reveal that higher labour, infrastructure and materials costs have blown-out the cost of the project. Fortescue said that study, undertaken by the Worley Group, was near completion and would provide a report that would be “comprehensively reviewed” by the management and advisory group, GEM Consulting. But while Fortescue readily admits in the statement to the market that the cost has blown-out, it has restated its original position on resource estimates, clarifying the wording of previous statements.

Under the ASX’s JORC standard of reporting ore reserves, the ‘proven’ grade is the highest confidence interval for resource estimations.

In response to an ASX query put to Fortescue, the company has revealed that it did not mean to infer that this grade had been reached. In fact, the company said that, in previous statements to the stock exchange, it had already indicated the reserves to be at the ‘inferred’ or indicated status. In addition to these clarifications, Fortescue said the project time line previously stated could no longer be guaranteed.

Shares in Fortescue closed nearly 6 per cent lower at $3.11 one day before the response to the ASX query, knocking $41.3 million off the market capitalisation of the stock, which now sits at around $677 million, with the company having been worth more than $1 billion earlier this year.

The bad news follows another admission by the company made last month that contracts with its Chinese partners were not legally binding, as was formerly announced.

The disclosure issue continues to be a concern for the ASX as it works to standardise reporting across the publicly listed resources sector. The JORC Code was updated late last year to further clarify reporting in mining and the ASX is also currently studying ways to standardise reporting in the oil and gas industry.


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