Refinery costs hit Alcan

COSTS at Alcan's Gove alumina refinery project will jump 53 per cent above original estimates to $US2.3 billion ($A2.9 billion) because of labour shortages, bad weather and currency changes.

The world's second-largest aluminium producer yesterday joined heavyweights BHP Billiton and Rio Tinto in announcing cost overruns in trying to get projects operational in a resources boom.

Alcan announced its second costs hike at the project in the Northern Territory after saying in September that costs had risen from $US1.5 billion to $US2 billion.

A five-year rally in metal prices has sparked a surge in mining and refinery projects in Australia and led to a worker shortage and higher wages. Bad weather has interrupted the shipping of components and a rising Australian dollar has also increased costs.

"It's disappointing but not catastrophic," Blackmont Capital analyst Lawrence Smith said.

"Does this signal management doesn't really know what's going on in this operation? It doesn't inspire confidence.

"I don't think Alcan is in any way unique. It's a function of what is going on in these markets."

Gove, now 95 per cent complete, will produce 2.3 million to 2.4 million tonnes this year, compared with 1.8 million tonnes last year. Production will rise to about 3.8 million tonnes a year next year.

"Despite extremely tight market conditions in Australia for labour and materials, the project will deliver positive results by significantly improving Alcan's cost position and capacity in alumina," bauxite and alumina boss Jacynthe Cote said.

Alcan has tried to limit costs by pre-assembling components for the Gove project in lower-cost countries such as Vietnam but bad weather interrupted the shipping of some parts,

The project is likely to be finished this year.

Alcan isn't the only company to announce delays and unanticipated costs in Australia.

BHP Billiton said in November its Ravensthorpe nickel project in Western Australia would cost 64 per cent more and take up to a year longer to develop.

The cost of developing Rio Tinto's new Clermont mine in Queensland doubled from original estimates to just under $1 billion.

Engineers Leighton also said in November its orders backlog rose to a record $18 billion because of demand and it was hiring workers from Serbia, the Philippines and South Africa.