18/02/2021 - 11:00

Fortescue confirms Iron Bridge cost blowout

18/02/2021 - 11:00

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Fortescue Metals Group has confirmed a $US400 million cost blowout for its Iron Bridge magnetite project while announcing a 44 per cent growth in revenue and higher dividend payout.

Fortescue confirms Iron Bridge cost blowout
Elizabeth Gaines says Fortescue's recent departures are unrelated to a cost blowout at Iron Bridge. Photo: Gabriel Oliveira

Fortescue Metals Group has confirmed a $US400 million cost blowout for its Iron Bridge magnetite project while announcing a 44 per cent growth in revenue and higher dividend payout.

A technical review of Iron Bridge that commenced in December last year has revealed an increased capital cost of $US3 billion for Iron Bridge, up from $US2.6 billion, Fortescue announced this morning.

The project has also been delayed, with production expected to begin in the latter half of calendar 2022 compared with Fortescue's previous first-half expectation.

It comes two days after chief operating officer Greg Lilleyman resigned from his position, along with Fortescue’s director of projects, Don Hyma, and Iron Bridge director Marnie McDonald.

In a teleconference this morning, chief executive Elizabeth Gaines reiterated the departures were linked to the company’s values and culture rather than the Iron Bridge cost blowout itself.

“Greg didn’t do anything wrong in the sense of the usual financial, behavioural or business conduct parameters by which senior executives are judged,” Ms Gaines said.

“What he did was admit the fact that the Iron Bridge project had suffered a breakdown in team culture, and [that] in turn resulted in poor communication at the senior leadership level and a lack of empowerment across the organisation.

“News wasn’t being shared and that meant challenges weren’t being addressed in a timely way by involving others who could bring ideas and work on solutions.”

Mr Lilleyman, who joined Fortescue in January 2017, resigned from the role with immediate effect.

“I have worked closely with Greg for four years and I know that he takes his leadership accountability very seriously,” Ms Gaines said.

“The fact that he didn’t see the failings that were impacting the team culture or somehow missed the implications that subsequently came to light was the reason he made the incredibly difficult decision to resign.

“As he described that decision, it was quite simply that, at the end of the day, he felt accountable for the team and their behaviour and did not believe he had any other alternative.

“I respect Greg and I wish him all the very best for the future.”

Fortescue's Iron Bridge project, located 145 kilometres from export site Port Hedland, is expected to produce up to 22 million tonnes of high-grade iron magnetite concentrate each year.

Ms Gaines said further assessments were being conducted for both a pipeline and Fortecue's existing rail network as the transportation options for the project, among other areas of focus.

Meanwhile, chief financial officer Ian Wells said Fortescue's strong revenue and disciplined cost management had resulted in a positive first half for the company.

Fortescue's revenue grew by 44 per cent in the six months to December to $US9.3 billion, which contributed to an underlying earnings of $US6.6 billion (up 57 per cent).

Its net profit after tax (NPAT) stood at $US4 billion, up from $US2.5 billion.

"Fortescue has achieved outstanding results in the first half, and our balance sheet strength and liquidity position provides confidence in the outlook [for the business], and puts us in a very strong position for the second half of the financial year," Mr Wells said.

Fortescue ended the first half with a cash balance of $US4 billion and gross debt of $US4.1 billion, following the repayment of a $US1 billion revolving credit facility.

The board has declared a fully franked, interim dividend of $A1.47 per share, up from 76 cents on the first half of FY20 and representing an 80 per cent payout of NPAT.

Fortescue was trading about 3 per cent higher at 2:13pm AEDT to $25.11 per share.

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