PERTH (miningweekly.com) – ASX-listed TNG has warned of a cost blow-out at its proposed Mt Peake vanadium/titanium/iron project, in the Northern Territory.
Capital expenditure (capex) estimates released in 2019 estimated that the project would require a capital investment of A$824-million, with the TIVAN processing plant to be located in Darwin.
This estimate assumed that additional capex for certain areas of equipment and plant totalling A$491-million would be funded by third parties under “build-own-operate” arrangements.
TNG in September last year made the strategic decision to move to a single, consolidated and integrated mining and processing operation for the Mt Peake project, with all processing operations to be co-located at the Mt Peake mine site rather than being split across two separate sites.
The company said at the time that the fully integrated operation would result in a reduction in construction requirements, reduced solid waste and tailings disposal handling costs, an optimised processing lay-out and an expected lower-risk final permitting process.
TNG appointed Clough to develop an optimised plant layout for the integrated project, which was completed in November last year, and Clough was also engaged to provide an updated capex estimate for the project on the basis of this new layout and the front-end engineering design study deliverables.
However, Clough’s ability to progress updated equipment pricing and the capex estimate for the project have been adversely impacted by unprecedented market conditions, largely driven by the ongoing impact of the post Covid-19 pandemic, the escalating armed conflict in Ukraine, congested supply chains, labour shortages and the general global macro-economic environment, TNG previously warned shareholders.
The contractor has now advised TNG that while this work is ongoing and in progress, the estimates of equipment pricing received to date are significantly higher than anticipated, but were, in Clough’s opinion, unreliable and not accurate or reflective of likely future market conditions.
As a result, Clough has further advised it is not yet in a position to provide TNG with a definitive overall pre-production capex estimate for the project and further work is required to complete this, with a completion target of mid-2023.
Despite this, TNG on Thursday told shareholders that current indications were that capex, both for the company’s own pre-production expenditure and for any equipment and plant provided by third parties under “build-own-operate” arrangements, is likely to be "significantly higher" than estimated in 2019, although it was too early to determine the extent of any capex increase until the project’s capital cost estimates are completed.
“This is not surprising given the changes in macro-economic and other conditions noted previously,” TNG said in a statement.
Clough has submitted a proposal to work with the company to reduce and optimise equipment requirements across the project through a detailed value engineering exercise, and to undertake further commercial processes to attempt to reduce and optimise pricing, with the objective of minimising the overall capex for the project.
This work is intended to culminate in an updated AACE Class-4 cost estimate for the project.
“TNG will seek to mitigate any upward cost impacts wherever possible and will provide relevant updates as the potential financial impacts of the project’s capital cost estimates are more comprehensively understood, noting that until work relating to the capex estimate is completed, TNG will not be in a position to provide a definitive pre-production estimate,” the company said.
As a result, the company will not be in a position to make a final investment decision (FID) until after this work has been completed, and subject to Clough then being able to prepare and submit an engineering, procurement and construction proposal which is acceptable to TNG.
In the meantime, TNG will continue to progress its financing, permitting and other regulatory requirements in parallel so that it is positioned for an FID.