Citic Studies New Mine Builder as Chinese Contractor Costs Rise

Citic Pacific Ltd., the Chinese company developing a $7.1 billion iron ore mine in Australia, may switch to local building contractors to finish the project after China Metallurgical Group Corp. demanded higher payments.

“We haven’t made a final decision” as to whom the company will hire to build the remaining four production lines, Managing Director Zhang Jijing told reporters today in Hong Kong. China Metallurgical is building the first two lines that will start output by the end of the year, Citic said.

Citic, a steelmaker and property company that’s backed by China’s biggest state-owned investment company, said on Dec. 30 it would pay an additional $822.1 million to China Metallurgical to build the Sino Iron project due to higher labor, material, and foreign exchange costs. The company is “very disappointed with the performance” of the Chinese contractor, it said at the time.

“The decision depends on factors including price, time, and quality,” Zhang said. “We have confidence that the first and second production lines can proceed as scheduled, but it’s a very complicated and highly automated project.”

The company is considering removing construction of a pellet plant and part of its tailings dam to reduce costs or accelerate development, it said. The first production line will be completed in May and first output is to begin by the end of August, it said in December.

The mine producing magnetite, a low-grade ore than hematite, has 2 billion metric tons of resources and will supply the company’s special steel plants, according to Citic Pacific’s website. The Citic Group unit is China’s largest producer of specialized steel, the website said.

Earnings Gain

Citic Pacific closed 0.6 percent lower at HK$14.52 in Hong Kong. It reported full-year profit rose 4 percent to HK$9.23 billion ($1.19 billion) and sales for the year gained 42 percent to HK$100.1 billion.

The company will pay a final dividend of 30 Hong Kong cents a share, taking full-year dividends to 45 cents.

“The first half of 2011 showed strong demand for steel products but the second half, particularly the last quarter of the year, was much weaker,” Chairman Chang Zhenming said in the statement.

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