Iron Bridge project cost blowout claims Fortescue Metals Group’s chief operating officer Greg Lilleyman

Fortescue Metals Group’s chief operating officer Greg Lilleyman has parted ways with the company after a review into what is believed to be a multi-hundred-million-dollar blowout at its Iron Bridge magnetite project in the Pilbara. Fortescue confirmed the former Rio Tinto executive’s resignation, with immediate effect, in a release to the share market at midday. The company also confirmed its project director Don Hyma and Iron Bridge director Manie McDonald had left the company in the shake-up. And chief executive Elizabeth Gaines and chief financial officer Ian Wells will lose annual bonuses amounting to millions of dollars. The moves follow a detailed review by the company into its $US2.6 billion ($3.35b) Iron Bridge project, which is understood to have experienced a significant blow-out in costs and schedule. In a hastily-convened conference call with reporters at noon, Ms Gaines attributed Mr Lilleyman’s departure and the other “difficult changes” to a “loss of sight” of the company’s values and culture, which had been revealed during the review. “This is largely about people and behaviour and it wouldn’t be appropriate to comment any further on any specifics,” she said. “Our values are not a smorgasbord, so we can’t pick and choose from our values,” she said. Ms Gaines also referred to a “breakdown in communication” but categorically rejected any suggestion of inappropriate personal behaviour or financial impropriety. Mr Lilleyman joined Fortescue in January 2017 as operations director and had been speculated as a potential candidate for the role of chief executive following the departure of Nev Power in February 2018 before the position was given to Ms Gaines, who was chief financial officer at the time. Today, Ms Gaines cautioned against assuming the executive departures were a reflection of the capital estimates of Iron Bridge. The Andrew Forrest-controlled iron ore miner has remained tight-lipped about reports of a major cost overrun at the project with speculation suggesting the blowouts could amount to as much as $US650m ($833m). It is understood Iron Bridge has been hit by rising steel costs, a firmer Australian dollar and a shortage of temporary skilled labour because of border restrictions amid the coronavirus pandemic. Ms Gaines said the company would update the market on Iron Bridge at its first-half results on Thursday. She confirmed both she and Mr Wells would forego all incentive payments for this financial year. “As CEO, I also have to take accountability where we’ve seen this breakdown in our values,” she said. “We take this opportunity to reset the company’s focus on our culture and values which defines us and makes Fortescue a truly great company.” Fortescue also announced today the general manager of its Solomon operation, Derek Brown, had been appointed acting director of projects, supported by the company’s senior projects team. However the departure of Mr Lilleyman and the other senior executives leaves a gap in the company’s operational management. After tracking higher in earlier trade, Fortescue shares dropped 73¢, or 3 per cent, to $23.70 at the close of trade. A joint venture between Fortescue, Taiwan’s Formosa and China’s Baosteel, Iron Bridge lies 145km south of Port Hedland and is due to enter production in mid-2022. It is expected to deliver annual production of 22 million tonnes of low-impurity, 67 per cent iron concentrate. Stage two works were approved in 2019 and were expected to create 3000 construction jobs and 900 full-time operations roles. The works include an ore processing facility, airstrip and village, a 195km water pipeline, a 135km concentrate pipeline to Port Hedland and new port handling facilities. Iron Bridge is Fortescue’s first magnetite project. FMG has historically focused on haematite direct shipping ore projects in the Pilbara. The project is part of the company’s strategy to boost the average iron grade of its product above 60 per cent. While magnetite operations deliver a higher-grade product, beneficiating the ore typically costs more and uses more energy intensive processing. Magnetite projects have had a poor track record in WA with Ansteel’s Karara magnetite project in the Mid West and CITIC Pacific Mining’s Sino Iron project at Cape Preston also experiencing cost blowouts in development. Both have also struggled to operate profitably because of high operating costs and processing problems. When Fortescue sanctioned the project in April 2019, Ms Gaines said Fortescue had effectively de-risked Iron Bridge by investing $US500 million since 2010 in developing a pilot plant that produced a concentrate product. She said Iron Bridge would also benefit from Fortescue’s “unparalleled track record in successfully developing infrastructure and mining projects in the Pilbara”. Mr Lilleyman said Fortescue had developed a process flowsheet specifically tailored to Iron Bridge’s low moisture ore, allowing for one of the most cost and energy-efficient magnetite operations globally.