• FMG lifts production guidance to record high after strong quarter of iron ore shipments
  • However, operating costs have lifted and costs have blown out again by US$300 million on its Iron Bridge magnetite mine
  • Gold miners dump guidance and see costs climb as Covid and labour issues bite in WA

Fortescue Metals Group (ASX:FMG) has confirmed another cost jump at its flagship growth project, the Iron Bridge magnetite mine, in its quarterly results but enjoyed a bump for its share price after reporting strong shipments.

The third largest Pilbara iron ore miner exported 46.5Mt of iron ore from its WA operations in the third quarter of FY22, 10% higher than the same period 12 months ago as its shipments for the nine months to March 31 hit a record 139.5Mt.

That prompted an upgrade in full year guidance from 180-185Mt to 185-188Mt, promising record iron ore exports for 2022.

The lower grade producer also reported a slight improvement in price realisation for its product, achieving average revenue of US$100/dmt or 70% of the Platts 62% CFR index, compared to 68% in the December quarter.

But FMG has also seen costs rise 3% to US$15.78 per wet metric tonne, forcing it to lift opex guidance from US$15-15.50/wmt to US$15.75-16/wmt for the financial year and increased its capital estimate for Iron Bridge by $300 million on each end to US$3.6-3.8 billion.

First production has also been delayed from December 2022 to March 2023. Despite the blowouts FMG and its 31% JV partner Formosa Steel remain dead keen on delivering Iron Bridge, which will deliver 22Mtpa of a 67% magnetite concentrate that draws a premium to the 65% Platts index.

FMG had US$2.2 billion in cash on March 31 after paying a US$2b interim dividend and US$830m of capex, including the US$221m deal to purchase Williams Advanced Engineering.

“Against the backdrop of a record performance in our iron ore business and our focus on decarbonisation and green energy, Fortescue is well placed to finish the financial year strongly, as we continue to meet demand from our customers and deliver on our strategic priorities,” FMG CEO Elizabeth Gaines said.


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Gold miners dump guidance as Covid bites

The rough and tumble impact of Covid-19 on WA gold miners has continued to unravel in reporting season, with Silver Lake Resources (ASX:SLR) sensationally dumping guidance to prompt a major sell off.

Silver Lake shares tanked by 11.5% after producing 53,811oz of gold and 262t of copper at an all in sustaining cost of $1634/oz.

Despite reporting year to date production of 182,778oz of gold and 756t of copper at $1643/oz and average sales of $2441/oz, SLR said Covid cases at its WA mines Mount Monger and Deflector in March and April led it to withdraw guidance.

The company said while it is positioned to meet its FY22 guidance, the “severe disruption caused by Covid-19 related labour shortages” and related supply chain disruptions are likely to continue.

St Barbara (ASX:SBM) meanwhile reported a massive climb in all in sustaining costs from $1587/oz in the December quarter to $2290/oz in the March quarter on production of 61,819oz of gold.

The owner of the Gwalia gold mine in Leonora said its WA operations were impacted by skilled labour shortages in WA as well as lower grades and third party ore feed, and suffered a major Covid outbreak at the Simberi mine in PNG as well as lower grades at the Atlantic gold operations in Canada.

Managing director Craig Jetson said competition for labour was so fierce in WA at the moment that critical maintenance staff were being poached in the days and weeks before shutdowns.

“We’ve had a couple of shuts in this quarter, a lot of planned work. And at times we’ve had 30 to 40% of the contractors supposed to come to site not turn up for the plane because on the day or the week before or whatever they’ve found a dollar an hour extra somewhere else and they’ve gone off to do another shut somewhere else,” he said.

“So dollars are playing a part of it and we’re seeing that pressure.”

While WA’s borders are open now, he said many workers have decided to work closer to home in the wake of the State’s previous hard border arrangements.

“I think the technical labour in particular there are a lot of technicians from Caterpillar and from Epiroc and a whole range of different specialist fields come from the eastern states and access to those people and the demand is extremely high,” Jetson said.

“And I’d have to suggest that people in the eastern states have learned how to work in the eastern states and a lot of people are not travelling anymore, which is causing further pressure on getting the resources, so it’s something the industry is managing as best with what we’ve got.”

That was also felt by Regis Resources (ASX:RRL), which reported gold production of 103,100oz at AISC of $1574/oz in the March quarter.

That included 74,800oz at its flagship Duketon project at $1672/oz and 28,300oz at $1216/oz from Regis’ 30% share in AngloGold Ashanti’s Tropicana mine.

RBC’s Alex Barkley said Covid and labour issues sent gold production 8% short on its estimates but AISC impacts were “controlled”.

“Considering the gold miss and rising industry cost pressures, AISC were reasonably controlled with a slimmer 4% miss to RBCe. RRL expect a better Q4 with labour conditions to improve and delayed Garden Well South plant upgrades now completed,” the mining analyst said.

Regis boss Jim Beyer said the company lost around 1000 shifts due to Covid cases or close contact situations at Duketon, but wasn’t seeing workers flood back with the borders open.

“More broadly, you know there’s a lot of activity going on in the state,” he said.

“There’s a ‘boom’, a lot of movement of people going on, and up until recently the borders have been a part of a problem of getting people to relocate.

“They’re down now but I think it’s probably safe to say that it wasn’t like dropping the floodgates.”


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