Latrobe Magnesium avoids inflation hit with cost reductions
Latrobe has estimated an $8.5 million saving could be made in its capex budget.
While the engineering industry has been facing unprecedented cost pressures, Latrobe Magnesium (ASX: LMG) found it could make savings of $8.5 million and now its Victorian magnesium metal project is picking up speed again.
In its latest quarterly report, the Sydney-based company says the entire industry has been battered by cost rises due to global shocks, including COVID-19 and inflation.
In Latrobe’s case, capital costs shot up 16%.
The company during the December quarter was compelled to slow its procurement process while it undertook a value engineering study aimed at finding reductions that could be made in the capital cost of production plant in the Latrobe Valley.
Capital cost slashed by 18%
The program was paused while the study was underway, between November and mid-January, but the end result brought good news: some $8.5 million, or 18%, could be pared from the capex budget.
Latrobe has developed a hydrometallurgical extraction/thermal reduction process to extract magnesium metal from fly ash generated at Victoria’s brown coal-fired power generating stations.
With various by-products are also extracted, almost 100% of the fly ash is utilised.
The global market for magnesium metal is running at about 1 million tonnes per year, and the company says this is expected to double in the next few years.
Initially, the company is in the process of building a 1,000tpa year plant at Hazelwood North, but the longer-term plan is for a 10,000tpa operation which would generate an estimated $1 billion per annum cash flow.
The results of the value engineering study brought the capital cost back to target and allowed construction and procurement to resume.
Most output will go to the Americas
Overall, the project is 22% complete, within the engineering component 60% finished.
Process engineering is focusing on the completion of the few remaining mechanical and equipment packages, vendor engineering and issuing for construction drawings.
Last month the company upgraded its distribution agreement with Metal Exchange Corporation of St Louis, Missouri.
Now the majority of its magnesium product will be delivered into North, Central and South America as well as the Caribbean.
“The contract will deliver excellent prices to LMG due to the US anti-dumping duty payable on magnesium imports from China,” the company stated.