Building materials group Boral has admitted to a A$44 million cost hike that has almost doubled the cost of upgrading its Waurn Ponds cement plant in southern Victoria. The anticipated costs would now reach $89m, up from an anticipated A$45m, at a project to increase clinker and cement capacity at the Waurn Ponds plant to 800,000tpa, it said. The company blamed higher steel costs, labour issues, an inaccurate original quote from the project’s head contractor, the extended scope of the project and bad weather.
The managing director of Boral subsidiary Blue Circle Southern Cement, Phil Jobe, said the original budget had been "very much preliminary" and had been affected by a sharper than anticipated rise in the cost of steel and construction labour over the past two years. "If you announce and estimate a product two or three years ago, that’s often the case," he said. "Labour and steel have gone up more than people thought."
Mr Jobe said that, "fingers crossed", the upgrade would reach the "flame-on" testing stage late in July, to be followed by a commissioning period of up to several months. He said it was possible costs would rise beyond the A$89m announced on Friday, but only by "a few million dollars. He said the upgrade should be fully functional and accretive to financial-year 2006 earnings from about September.
Boral also told analysts it planned $55m of investments in NSW: A$27m to be spent at its Berrima grinding mill on upgrading cement capacity by 400,000tpa and A$28m to be spent consolidating its cement-bagging facilities in Maldon.
The A$100m in extra expenditure necessary to fund the costs at Waurn Ponds and the investments in Berrima and Maldon would not affect its full-year 2005 results, which it would present on August 16, nor materially affect its forecasts for 2006, a company representative said.
Boral said its lime plant at Galong, where a A$50m upgrade came online in March, was "being fine-tuned" amid increased demand for lime in NSW.
The company recently signed a contract to supply lime to BlueScope Steel’s Port Kembla steel plant near Wollongong from the Galong plant. It has forecast a profit for the second half similar to the A$191m recorded in the six months to December, leading to a pre-abnormal full-year profit slightly higher than the A$370m achieved in 2004.