The rising risks of bringing new projects online: Allkem and Hawsons Iron

Mon 24 Oct 22, 2:06pm (AEST)
Red flag danger warning
Source: iStock

Key Points

  • Hawsons Iron shares plunged -62% last week after delaying key feasibility studies due to rising costs
  • Allkem pushed back its Olaroz Stage 2 expansion by ~6 months amid supply chain issues
  • Perhaps its time to double check emerging mining companies and what they're doing to mitigate inflation and supply chain risks

Rising inflation costs and persistent supply chain challenges have derailed several timelines for bringing a new project online or ramping up production.

Hawsons Iron (ASX: HIO) and Allkem (ASX: AKE) are the two latest victims forced to push back the delivery of key project milestones as these headwinds persist.

Hawsons shares were sold to oblivion on Monday, 17 October after announcing plans to delay its upcoming Bankable Feasibility Study to assess 'escalating global costs and deteriorating economic conditions'. The company shares finished the day down -62%.

“We, like many companies, are being challenged by the current economic climate, falling Australian dollar, supply chain cost escalations and restricted access to equity markets which are beyond our control," warned Chairman Dave Woodall.

Allkem faced a far less brutal selloff, easing -1.8% on Friday, 21 October after posting a generally positive September quarter result. Although, the company said its Olaroz lithium hydroxide project expansion was facing delays due to delays for key piping and electrical equipment.

The Olaroz Stage 2 expansion was supposed to come online in December 2022 but now pushed back to the second quarter of 2023. Allkem also flagged that the 'delay in completion, regional and global inflation impacts and supply chain constraints' have bumped up total capital expenditure for the expansion by approximately 12% to US$425m.

The bigger picture

Companies make several assumptions when it comes to project capital and operating costs. Amidst such an inflationary and volatile environment, these variables keep changing and companies are forced to rejig these assumptions.

In the case of Allkem, pushing an expansion back by a couple of months and a 12% increase in total capital expenditure is not the end of the world. The company said the increase in costs will be funded by existing cashflows.

But these impacts can be far more detrimental for emerging companies like Hawsons.

Perhaps it is a time to double check any companies that are currently progressing feasibility studies or in the early stages of construction.

Have they made any cost assumptions that may face upside risks?

How are they mitigating risks? Have they secured funding to bring the project into production?

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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