[ferro-alloys.com]BHP says it is confident of keeping a handle on the cost of its massive $4.9 billion South Flank iron ore project in the Pilbara despite emerging inflationary pressures in the WA economy.

Speaking at a sod-turning event to mark the start of work on the 80 million tonnes per annum project yesterday, BHP Minerals Australia boss Mike Henry said recent cost pressures in the labour and services market had been built into the budget for the new mine.

“With what’s happening on the east coast by way of infrastructure projects, and with a number of investments being made here in WA, we are seeing a little bit of pressure in some areas and for certain types of skills, but that’s the sort of thing that we deal with,” he said.

“It’s built into the way we’ve thought about the project and we’re confident that we will be able to deal with that over the construction period.”

Several WA mining executives have warned of a looming skilled-labour shortage in the industry in recent months, with fears of a wages breakout.

BHP was forced to revise up the capital cost of South Flank in February this year by about $500 million before construction even began, attributing the higher costs to “more concrete” estimates as project planning progressed and on the back of a stronger-than-expected Australian dollar.

But Mr Henry yesterday noted that South Flank was a capital efficient investment for the company, much more so than its $US3.6 billion ($4.8 billion) Jimblebar expansion project, which had a $US340 million blowout before it was completed in 2014.

South Flank will leverage off existing infrastructure at the company’s adjacent Mining Area C processing hub, boosting its capacity from 65Mtpa to 145Mtpa.

The project will replace production from BHP’s depleting 80Mtpa Yandi mine, but crucially will boost the average iron grade of the mining giant’s Pilbara product from 61 to 62 per cent, lift the lump component from 25 to 35 per cent and bring with it a lower phosphorus content.

Each represents a positive for the company’s price realisation.

The Chinese government’s continuing crackdown on pollution and strong margins for steelmakers have combined to extend premiums for higher-grade ores, lump over fines and those with low impurities.

Mr Henry said the investment would help BHP stay competitive with higher-grade Brazilian products from global iron ore leader Vale.

South Flank will generate 2500 jobs during production and 600 jobs in operation, though many of the latter roles will be filled by staff from the Yandi mine, which is nearing the end of its economic life.

First ore from South Flank is expected in 2021, with a three-year ramp-up to 80Mtpa

• [Editor:王可]