BCI flags A$500m cost blow-out and delayed production

20th June 2023 By: Esmarie Iannucci - Creamer Media Senior Deputy Editor: Australasia

BCI flags A$500m cost blow-out and delayed production

Photo by: Bloomberg

PERTH (miningweekly.com) – Potash developer BCI Minerals has flagged a A$500-million cost blow-out at its Mardie potash project, in Western Australia, while also warning of delays to first production.

The company on Tuesday revealed the results of its design and cost review, which has updated the cost estimate for Mardie to A$1.62-billion, with a base estimate of A$1.42-billion and a contingency of A$208-million.

This is significantly higher than the A$913-million cost previously estimated for the project.

MD David Boshoff said in a presentation on Tuesday that the cost and design review had identified cost pressures across a number of areas, a key one being the civil works, which had impacted the cost of the ponds, roads, transfer stations, crystallisers and jetty pad.

“The key driver of these costs were from geotechnical conditions of borrow material, which increased haul distances that impacted demand for diesel, labour, accommodation and flights, all of which were subject to market cost increases.

“The salt plant, while improved in design, increased in quantity of steel required, and also suffered from the increased cost of underlying components due to supply logistics and labour shortages driven by Covid. The design and cost review process has increased the robustness of the project design and confidence in the cost forecast,” he said.

Boshoff told shareholders that while significant work had been undertaken on the project scope to ensure that it was optimised and fit for purpose, the review process had retained the steady state production level of 5.35-million tonnes a year for salt and 140 000 t/y for sulphate of potash (SoP).

The timing of the first salt on ship and first SoP on ship, however, has both been delayed, with salt now targeted for mid-2026 and SoP mid-2027, instead of the initial target of the first quarter of 2024 and the first quarter of 2026 respectively.

“Mid-2026 lines up well with the salt marketing regimes in the Asian markets and allows trial cargoes to be conducted for the Mardie product during the first year of production to our key customers,” Boshoff said on Tuesday.

Construction at Mardie started in February 2022, and as of the end of March this year, BCI has spent a cumulative A$307-million on the project. Overall, construction progress is 22% complete, and to date A$551-million in contracts have been awarded.

The necessary approvals to finalise the construction of the project were progressing, Boshoff added.

The company said on Tuesday that although global costs had increased for construction, so too had the long run prices of both salt and SoP owing to an increase in market demand and an anticipated shortfall in supply. This had driven a 50% increase in the forecast earnings before interest, taxes, depreciation and amortisation at the project, which was now estimated at A$384-million at steady-state while the project now had an improved net present value of A$2.6-billion compared with the A$1.5-billion estimated at the time of the final investment decision.

“These key factors support BCI’s ability to secure an appropriate amount of project finance, and then to complete the equity raising process for Mardie. BCI expects to provide further information on project finance and its equity-raising process in coming months. BCI is considering equity raising at both BCI and project levels,” Boshoff said.

Discussions with financiers are progressing and BCI is targeting final documentation by the third quarter of this year to fund all capital except for the SoP plant. Debt finance for the SoP plant is targeted for late in 2024, on the completion of further design and cost development.