WA mining project faces 25% cost surge

Company News

by Glenn Dyer

Cost pressures persist in Western Australia's mining and construction sector, as one of Australia's government-funded renewable minerals processing projects experiences a 25% increase in expenses.

Iluka's (ASX:ILU) rare earths processing plant project in Eneabba, near Perth, initially estimated at $1.25 billion through a non-recourse funding deal with the Federal government unveiled in April 2022, now faces delays. The front-end engineering and design (FEED) were originally slated for completion by December but have been pushed to the first quarter of 2024. Additionally, the refinery's cost is expected to exceed previous estimates by $300 million.

"Iluka has previously noted the challenging project environment in Western Australia, which will impact expected capital costs," the company reported to the ASX. Market consensus suggests project costs ranging from $1.3 billion to $1.6 billion, with an average of $1.5 billion. FEED work conducted thus far indicates that the capital cost may surpass that average by up to 20%.

The challenging project environment relates to labor shortages and supply chain constraints in the state. A similar situation affected the Lynas rare earths downstream processing plant in Kalgoorlie, which experienced budget increases from the original $500 million to approximately $730 million, with delays. The plant is expected to be operational by the end of the current month.

Adbri's cement plant concentration project in Kwinana, south of Perth, faced a similar scenario, resulting in a doubling of the original 20220 cost estimate from $199 million and a delay of at least six months.

Iluka is collaborating with Fluor Australia to complete FEED construction, and preliminary FEED materials indicate that refinery commissioning is now slated for 2026.

The Financial Review reports that the Federal Government's Export Finance Australia, responsible for managing the loan to Iluka under the Critical Minerals Facility, will work with Iluka to address the cost increase and discuss next steps, as they would with any borrower.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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