Fortescue Metals Group has revealed a $900m jump in costs at its flagship iron ore development, highlighting how labour shortages and rising material costs are buffeting Australia’s mining sector.
The company, one of the world’s biggest iron ore producers, said on Friday its Iron Bridge mine would now cost between $3.3-3.5bn to develop, due to factors including labour constraints, higher materials costs and a strong Australian dollar, which had also caused a six-month delay.
The disclosure, part of a review of the project in Western Australia’s Pilbara region, followed the departure of three senior Fortescue executives in February. It marks the second time that costs on Iron Bridge have blown out, with Fortescue saying in February the project would cost up to $3bn, up from an original estimate of $2.6bn in 2019. Fortescue is guiding December 2022 for first iron ore production at the mine.
Demand for workers in Western Australia is red hot due to a record surge in iron ore prices, which has encouraged resources groups Rio Tinto, BHP, Fortescue and smaller producers to invest in new mines.
Elizabeth Gains, Fortescue’s chief executive, said labour constraints were mainly an issue for the group’s contractors working on the Iron Bridge expansion. Some of these contractors are being affected by difficulties in moving labour around Australia because of coronavirus restrictions, she added.
Fortescue’s jump in costs marked the latest in a series of warnings by miners about labour shortages due to an iron ore boom and rising costs linked to the closure of Australia’s international and state borders due to Covid-19.
This week, BHP warned about a “critical skills shortage” of train drivers in the Pilbara, a remote region that produces the vast majority of Australia’s iron ore. The world’s biggest miner said it was recruiting 200 new train drivers and fast-tracking the training of personnel in maintenance-focused trades and qualifications.
Last month, miner Mineral Resources downgraded its annual iron ore production forecasts by 13 per cent due to shortages of truck drivers caused by state border closures.
Employment in the resources industry in Western Australia increased by 5 per cent to a record 135,001 last year, with investment of A$19bn in the sector. This represented the first year-on-year increase in mining and petroleum industry investment since the end of a previous boom in 2012-2013, according to Western Australia government statistics.
The unemployment rate is 4.8 per cent in Western Australia.
“The Pilbara is the powerhouse of Australia at the moment, in large part due to the world’s insatiable appetite for our iron ore,” said Michael Stutley, a partner at Kingston Reid, a law firm specialising in employment. “The skills shortage is reaching a critical level. If nothing is done, then [it] will turn into a negative drag on the economy.”
Stutley said Canberra needs to introduce “targeted work bubbles” with other countries to enable skilled workers to enter Australia and support the resources industry.
Australia’s conservative government has said the country’s international border will not reopen until mid-2022.