IGO’s Cosmos nickel project to cost up to $825 million, almost three times the original estimate

IGO says its just-acquired Cosmos nickel project near Leinster will cost up to $825 million to complete — almost triple the original estimate — partly because the company is increasing the nickel concentrator capacity.

IGO took control of Cosmos, where the Odysseus underground mine is being developed, when it picked up Western Areas in a $1.26 billion deal in June.

In its September quarterly report released to the ASX this week, IGO said total project costs to June 30 were $302m, and the company estimated another $493m to $523m would be needed to complete it.

“This includes all project development activities up until commercial production, plus the forecast costs to complete the shaft and shaft infrastructure that are expected to be completed around the end of CY23,” the company said.

“Accordingly, IGO estimates the total cost of the project, including the period prior to IGO ownership, to be between $795m and $825m.”

The company noted a KPMG independent expert report published in April estimated Cosmos would cost $425m.

IGO said this report had been issued to assess the reasonableness of IGO’s proposed takeover of Western Areas.

However, Cosmos’ price tag was $300m when Western Areas announced the project in 2018.

In explaining the extra cost, IGO said $150m was because of its optimisation plan involving scope changes to the project — which includes the expansion of the processing plant’s nameplate capacity to 1.1 million tonnes per annum from 750,000 tonnes per annum.

Another $140m was because of “timing” — which the company said was “items that were previously not classified in the project capital estimate such as sustaining capital or operating costs that are now included”.

Then there were “rectifications, omissions and escalation” of $95m “that were not included in the independent expert report that IGO has deemed necessary in order to deliver a safe, efficient and reliable operation”.

“It is estimated that between $400m and $425m will be spent in FY23,” the company said.

GR Engineering Solutions, which worked with IGO on the development of the Nova nickel-copper mine in the Fraser Range, this week told the ASX it had been awarded a contract variation to carry out the processing plant work at Cosmos, with the value of the engineering, procurement and construction contract now worth $76m.

IGO said it expected the plant to be completed during the third quarter of next year, with first concentrate to be produced from ore stockpiles at this time.

The company said shaft and associated infrastructure was expected to be finished by the end of next year, after which the hoisting of ore from the Odysseus shaft would start.

“IGO considers commercial production for the Cosmos project will be achieved when the process plant is capable of operating within acceptable limits of its intended operating capacity during the first quarter of FY24,” the company said.