Gindalbie Metals Swept by Cost Blow Outs Trend

Gindalbie Metals (ASX:GBG) announced a major cost blow out in a joint venture with Ansteel, jumping 62 percent in operating costs for its Karara iron ore project. The miner confirmed their previous estimate of $2.57 million in costs. Gindalbie is the latest addition to the growing list of cost blow outs, which includes major players such as BHP and Woodside.

The cost of Karara was originally projected at $1.6 billion. However an underestimation of materials were needed at that time. "The project was announced on a relatively immature feasibility study but that also enabled the long-lead items to be purchased and the various approvals to be progressed," managing director Tim Netscher said.

He added that operation costs are higher due to infrastructure, with half it due to the general increase in the Western Australia mining industry.

"The capital cost component (of the infrastructure) was definitely underestimated originally and you don't really see that in costs for BHP or Rio and others, as they own the rail lines but we pay it off over the period of the operation."

"Our Chinese partners have exactly the same approach as Westerners to cost increases and have the same economic focus as the rest of us, so it was tough explaining these cost increases to them."

Gindalbie will use a rights issue to fund 50 percent of its portion in a $600 million shortfall in development costs. Its Chinese partner Ansteel has also indicated that it will support and equity raising.