Baja slides 5% after Boleo update tells of escalating fuel, material and labour costs

Baja Mining  (TSX:BAJ) shed 5% on Wednesday on higher than usual trading volumes, after releasing an update on its Boleo copper-cobalt-zinc project in Mexico.

The company in a carefully worded statement said it has detected "inflationary pressure on several key components of the project," including  fuel, steel and labour.

Before these cost run-ups Baja forecast $890 million would be needed to build the mine. It will now give a definitive cost estimate next quarter.

Baja also said in order to "maintain its  development schedule" for the underground mine and due to safety issues it has had to hire a contractor with an experienced work force because its own workers were "largely inexperienced".

The company kicked off surface ops late last year and at the end of February 2012, construction was 37% complete with 2,362 workers on site.

In early afternoon trade the miner was trading down 5% at $0.95 on the Toronto big board, at its lowest for the day. The mining sector was generally weak on the day with the TSX Global Mining index down 1.8%

Around 590,000 shares in the $325 million company had changed hands by 1:30 pm EST on Wednesday compared to the daily average of 440,000. The counter is still showing robust 2012 gains – it is up 20% year to date.

Apart from the snags with construction of 70%-owned Boleo, Baja is also involved in a bitter – and very public – boardroom dispute with 20%-shareholder Mount Kellet Capital Management.

Mount Kellett, which has pumped $80 million into Baja, has been not pulling punches, accusing Baja CEO John Greenslade of “enriching family and friends” at the expense of shareholders.

For its part Baja calls Mount Kellet a wolf in sheep's clothing wishing to do a takeover of the company by stealth.

A showdown at a special shareholders’ meeting to vote on the new board composition is set for April 3.