Agree that the mill at Fray Bentos is an appropriate reference point for the GNS's mill, so I don't disagree with any of your assumptions. If you benchmark the two quoted costs without standardisation (US$1.2 billion 5 years ago, with AU$2.5 billion today) it's easy to draw wrong conclusions. Even the Forex implication needs adjustment, as well as the five years of inflation. Five years ago (March 2006) 1 USD bought 1.32 AUD. So USD 1.2 billion becomes AUD 1.6 billion. I know it's also complicated by cross rates, given some of the Uruguayan mill components would have been fabricated in Asia, but that probably doesn't impact much on the coarse analysis I'm doing. Inflating that AUD 1.6 billion forward 5 years at 3.5% pa turns it into AUD 1.9 billion. As you have flagged, given the huge increase in steel prices over the last 5 years, an average inflation rate of 3.5% clearly underestimates the price increase. It doesn't take much to see USD 1.2 billion turned into AUD 2.5 billion 5 years later.
As well as what I pointed out in my earlier post (e.g. wharf construction) there is also:
1. A very long water pipeline. 30 km rings a bell but don't quote me. The Fray Bentos mill gets its water directly from the River Plate beside the plant. No long pipeline for them. 2. At 1.2 mtpa for Bell Bay, versus 1.0 mtpa for the Botnia mill, I'd expect some scaling up of many components. 3. The recovery boiler for one, the single most expensive unit process in a kraft mill, would have to be larger (and therefore more expensive) as the boiler is usually the capacity limiting step in a Kraft mill. 4. Bell Bay also has an unprecedented second power station, so that odorous air can still be incinerated when the recovery boiler is closing down or starting up when the primary power station might be halted for maintenance. An extra power house wouldn't come cheaply!
Lordo, you have flagged the AU$200 mill spent to-date. I'm sure the South Americans wouldn't have jumped through the crazy hoops GNS has been made to. A significant part of that cost has gone into the AU$200 million. So that's an Australian extra, thanks to Peter Garrett.
Does that mean we shouldn't do projects like this in Australia because we cannot compete with South American factory costs? - I hope not, and I believe I have shown that if we are not level pegging on Pulp Mills, then we are only marginally more expensive. Otherwise we might as well have a sign up at the airport asking the last working person to turn the lights off when they leave. The basket weavers that stay behind will, of course, be using candles for their lighting.
GNS Price at posting:
59.0¢ Sentiment: None Disclosure: Not Held
