Emerging miners squeezed between rising construction costs and falling commodity prices

Emerging producers from lithium through to fertilisers have been reluctant to update the market about the blatantly obvious cost increases needed to bring projects online. 

BCI Minerals (ASX: BCI) might be one of the first to let investors know that its Mardie Salt and Potash Project in WA is “experiencing significant cost increases due to well publicised market conditions”. 

The company will assess further value engineering opportunities in an attempt to reduce risk and partially offset increases. In addition, the Mardie Project is expected to undergo some design changes to improve its long-term performance against extreme weather events; something that Australia has seen quite enough of this year.

The time required to complete these cost reviews, delays due to weather events, impact of covid and other factors will push back the company’s first shipment date from the end of 2024 to the second-half of 2025. 

BCI reassured investors that its $209m in current cash reserves and $100m in convertible notes will enable the company to continue construction work.

Once a reliable cost estimate has been established, the company will explore funding solutions, which could include the sale of non-core assets.

Why this is underrated

There's a long list of explorers expected to hit producer status in the next three years - many of which come from green metal sectors including lithium, nickel, cobalt and uranium.

On the plus side, project capital cost estimates typically acknowledge the figures have a +/-15% accuracy, alongside added contingency costs. It's also common for companies to order long-lead items ahead of time.

On the flip side, inflation has continued to surprise to the upside this year. Deteriorating financial market conditions and rising interest rates could also have a flow on effect to project financing and corporate costs.

The good news is that most commodity prices have ironically tumbled across the board in the past few weeks. Potentially good for project construction costs, bad for miner profits.