Salt and potash developer BCI Minerals has budgeted up to $1.6 billion for the Mardie development following a sweeping review of the flagship’s costs, which are in all about $700 million more than planned.
BCI estimated it had spent about $307 million on its flagship Mardie salt and potash project in Karratha since starting construction in February 2022.
A comprehensive update tabled today follows a gruelling period for the company and concludes a nearly 12-month long design and cost review launched less than six months into the build, in response to ballooning labour and material costs.
Standing at about 22 per cent completion, the total cost of building Mardie now sits at a base case of $1.4 billion with $208 million in contingency.
Initial base case costs to build Mardie were first estimated at $905 million when BCI announced its final investment decision in 2021.
Former coal executive David Boshoff, who was recruited as a replacement for Alwyn Vortster after his resignation in August 2022, said lessons from the civil and infrastructure component of the build had already been incorporated.
“The cost and design review identified cost pressures across a number of areas, a key one being the Civil works, which has impacted the cost of our ponds, roads, transfer stations, crystallisers and jetty pad,” he said.
“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, whilst 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.”
Mr Boshoff maintained that key risks facing the project had been better detailed and that the design and cost review process had increased the robustness of the project’s design and confidence in projected costs.
Following today’s update and as a result of its review, BCI is expecting first salt on ships in the second half of 2026 and first sulphate of potash in the second half of 2027.
It’s the second time the milestone has been pushed back, with initial targets of the second half of 2024 adjusted to 2025 in the middle of last year.
Salt production targets of 5.35 million tonnes per annum and sulphate of potash production at 140,000 tonnes per annum have been maintained.
About $553 million worth of contracts have been awarded for Mardie since March 2023, BCI has said, and is anticipating more than 50 per cent of offtakes for salt to be secured in binding agreements before the end of the year.
Higher commodity prices have also been factored into BCI’s review, which has salt in 2023 fetching $US64.8 per tonne comapared with a $US49.6 per tonne estimate from 2021.
This in turn is tipped to lift Mardie’s earnings by 50 per cent once up and running, BCI estimated.
In terms of funding, BCI said it was progressing discussions with financiers and would be raising equity for the project in the last quarter of 2023.
Key lenders Northern Australia Infrastructure Fund and Export Finance Australia will remain involved with the project.