Fortescue to invest $1.7bn in new mine

Iron ore miner Fortescue Metals Group has approved development of its Eliwana mine and rail project in the Pilbara, which has an estimated $US1.28 billion ($1.7 billion) capital cost.

The project comprises a new 30 million tonnes per annum dry ore processing facility and 143 kilometres of rail.

Production is expected to begin in December 2020, with a life of mine strip ratio of 1.1.

The new mine is set to replace output from the miner's Firetail operation.  

The new cost estimate is nearly mid point between Fortescue's previous guidance of $US1 billion to $US1.5 billion. 

Chief executive Elizabeth Gaines said the project underpinned the introduction of a 60 per cent iron ore grade.

“Development of the Eliwana project will maintain Fortescue’s low-cost status, providing us with greater flexibility to capitalise on market dynamics while maintaining a minimum 170 million tonnes per annum production rate over 20 years,” she said.

“This project allows us to commence the supply of Fortescue premium product to the market from existing operations in the second half of FY19 with volumes increased as Eliwana ramps up to full production.

“This project is important to Fortescue and the state of Western Australia, creating up to 1,900 jobs during construction, 500 full-time site positions once operational, and the continued flow of benefits to our communities and the state economy.”

The new mine will be financed from operating cash flows at a capital intensity of $US42 per tonne.

A definitive feasibility study has been completed with detailed designed about to start.

Fortescue’s annual reserve and resource report, scheduled for release in August, will include the updated reserve and resource position at Eliwana.

Fortescue said the approvals process was under way.

Its announcement comes after news the Wintawari Guruma Aboriginal Corporation is seeking the realignment of a section of the planned Eliwana railway to avoid Aboriginal heritage sites.

The corporation alleges that the state government, and its Aboriginal Cultural Material Committee, took a flawed approach when they approved works that will affect heritage sites.

Today’s news comes with BHP Billiton expected to make a decision mid-year to proceed with the $US3.6 billion ($4.6 billion) South Flank iron ore project, while Rio Tinto’s planned Koodaideri iron ore mine is expected to cost $US2.2 billion.

Capital expenditure for Eliwana is expected to be incurred as follows:

FY19 - $US165 million

FY20 - $US760 million

FY21 - $US350 million