Gindalbie Metals’ billion dollar Karara cost blow out

Gindalbie Metals has announced that its Karara iron ore project will now cost $2.57 billion, in line with guidance in March.

Managing director Tim Netscher called the capital cost increase “disappointing” but stated that it was consistent with previous guidance.

The miner previously stated that its construction cost for Karara would increase by an additional 30%, on top of a 20% increase from last year.

However, it did state that this would result in first magnetite production two years earlier than scheduled and decrease running costs over the mine’s predicted 30 year lifespan.

According to Gindalbie, 70% of the increase is due to materials costs for the Karara concentrator and tender prices for the major construction packages, such as structural, mechanical, piping, electrical and instrumentation for it.

It said that “the underestimation of material quantities has been the result of the Karara’s strategic decision to commence construction in 2009 prior to completion of the detailed design process in order to ensure the project was developed as quickly as possible.”

To cover these costs, Gindalbie may go to its shareholders, after saying that it “will consider equity alternatives that would give shareholders the opportunity to participate on an equitable basis”.

Major shareholder Ansteel has already indicated it will assist in equity raising.

Hematite iron ore trial mining at Karara has already begun, with around 480 000 tonnes of direct shipping ore (DSO) expected to pass through until January next year.

DSO mining is also scheduled to start at Gindalbie’s Blue Hills and Terapod deposits in September.

Commissioning of the concentrator will start in January 2012, with first magnetite concentrate shipped in June later that year, and full production achieved by the end of 2012.

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