Fortescue Metals chief executive Elizabeth Gaines, second from left, and founder Andrew Forrest, centre, try shovelling at the Eliwana iron ore mine in Western Australia. Picture: FMG
Fortescue Metals Group is considering a significant change of strategy at its Iron Bridge magnetite mine in the Pilbara, with the company mulling plans to hand over mining at the massive operation to a contractor rather than do the work itself.
Fortescue is already facing a blowout of up to $US900m ($1.2bn) at Iron Bridge, and in May pushed back first production at the mine by six months, blaming surging labour costs in Western Australia and the stronger Australian dollar for the decision.
The company is understood to have already begun early works at Iron Bridge using its own fleet and staff, but is now in the market for a contractor to take over mining on a long-term contract as it looks to reduce capital spending on diesel-fuelled trucks.
Fortescue has previously said spending on the fleet of massive haul trucks needed to kickstart Iron Bridge has been included in its revised $US3.3bn to $US3.5bn capital estimate, and on Sunday said that ongoing cost pressures in the WA mining sector had not forced a fresh revision of its costing for the project.
“The project is on schedule for first production in December 2022 with forecast capital investment of $US3.3bn-$US3.5bn. The project is progressing well and in line with expectations,” Fortescue chief executive Elizabeth Gaines said.
“As previously noted, industry cost pressures reflect the impact of Covid-19 on the availability of labour with access to resources and specialist skills continuing to be impacted by ongoing state border restrictions, as well as general market inflation.
“The project estimate is unchanged and consistent with the previously advised range.”
While bringing in a contract miner is likely to save Fortescue $250m to $400m in the cost of buying a fleet of haul-trucks, the company has previously said that cost was factored into the $US5 to $US7 a tonne sustaining capital estimates for the mine, rather than being accounted for in its upfront capital cost estimates.
Fortescue is believed to have sought pricing from a number of major Australian mining services companies, with Downer – now a subsidiary of ASX-listed MACA – said to be leading the chase for the contract.
The decision marks a change in Fortescue’s usual strategy of using contractors for the first phase of mining at new operations, and then taking control of the operations once they reach consistent production levels.
But Ms Gaines said Fortescue was trying to keep its options open as it looked to replace its fleet of diesel-fuelled trucks with “green” hydrogen or battery-powered equivalents.
“Retaining optionality is particularly important when considering the benefit of avoiding investment in new diesel equipment as part of our decarbonisation pathway and contract solutions will be considered to enhance our flexibility,” she said.
“As we transition to commissioning and operations, we will maintain our focus on maximising value, including through our fleet strategy, which will be underpinned by our industry leading decarbonisation targets and our ongoing green fleet development.”
Fortescue has previously promised to stop buying diesel trucks by 2030, as its Fortescue Future Industry subsidiary tries to develop carbon-fee alternatives.
But Fortescue founder Andrew Forrest has previously hinted that that deadline could be brought forward, and spent considerable political capital last year in an unsuccessful attempt to lobby the federal government to begin phasing out the $US7.8bn diesel fuel rebate from 2025.
Last week Fortescue said it had commissioned two new electric locomotives to add to its rail fleet.
It is also trialling the use of ammonia as a fuel for its locomotives and as an alternative fuel for shipping vessels.
FFI has been hit by another senior executive departure, with director of energy Rob Grant understood to have left the company shortly before Christmas.
Mr Grant, the former head of renewable energy company Pacific Hydro and ex-chair of the Clean Energy Council, initially joined Fortescue in April 2020 to help lead its push to power its Pilbara mines with renewable power.
His departure extends a recent wave of senior executive resignations at Fortescue and FFI.
Ms Gaines announced her resignation as chief executive in December, kicking off a global search for a replacement.
Fortescue chief scientist Bart Kolodziejczyk left the company in November, after the departure of Pilbara operations boss Fernando Pereira, health and safety director Rob Watson, and long-term corporate affairs chief Tim Langmead.
The Australian understands the general manager of operations at Iron Bridge has also recently left the company, as have a number of other operational managers believed to have joined Mr Pereira at Gina Rinehart’s Roy Hill iron ore mine.
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