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Judge Reluctant to Oust Citic Pacific From Palmer Land

A dump truck drives across the mine site of Citic Pacific Ltd.'s Sino Iron project under construction in Karratha, Western Australia. Photographer: Carla Gottgens/Bloomberg
A dump truck drives across the mine site of Citic Pacific Ltd.'s Sino Iron project under construction in Karratha, Western Australia. Photographer: Carla Gottgens/Bloomberg

April 24 (Bloomberg) -- An Australian judge expressed reluctance to give billionaire Clive Palmer the go-ahead to kick Citic Pacific Ltd. off his land after the Chinese company spent A$7 billion ($7.2 billion) building a mine.

Palmer’s Mineralogy Pty sued in Western Australian state court in Perth seeking a court order that would let it terminate Citic Pacific’s Sino Iron unit’s mining rights and site-lease agreements at Palmer’s Pilbara property for failing to pay royalties.

“I would have real difficulty making the declaration as sought,” Western Australian Supreme Court Justice James Edelman said at the conclusion of a hearing yesterday. He ordered both sides to file additional evidence in writing by April 26 whether Palmer can exercise his right to end the deal with Citic Pacific.

The dispute centers over a 2008 agreement giving Citic Pacific the right to develop the biggest magnetite iron ore project in Australia on Palmer’s land. Citic Pacific agreed to start paying royalties when it had taken possession of the ore, which it says occurs after it’s crushed and weighed. Palmer claims the royalty is due when the ore is removed from the ground.

Citic Pacific, controlled by China’s biggest state-owned investment company, will pay the royalty if it’s found liable, Charles Scerri, the company’s lawyer said.

Currency Bets

“$7 billion has been spent on this mine,” he said, referring to the project that’s estimated to cost $8 billion. It would be “ludicrous” to try and avoid paying the royalty and losing the right to the mine, he said.

The Citic Pacific development has been beset by problems including a more than fourfold budget blowout and wrong currency bets that cost HK$14.6 billion ($1.9 billion) in 2008. Last week, the company said the mine, originally slated to begin output in the first half of 2011, wouldn’t make its first shipment of iron ore concentrate until the second half of May.

“There is a massive amount of ore for which no payment has been received,” Mineralogy’s lawyer R.J. Lee told the judge. “We have a right to terminate.”

Mineralogy will seek to replace Citic Pacific with other people, Lee said.

“You can’t really be submitting that I ought to make a declaration in circumstances where there is a large issue looming,” Edelman said.

Separate Suit

Citic Pacific has fallen 6.9 percent in Hong Kong trading since the company said Nov. 19 it was fighting Palmer’s attempts to terminate its mining rights. The Hang Seng Index has risen 2.6 percent over the same period.

In a separate New South Wales lawsuit, Mineralogy claimed it was owed a A$200 million royalty, which was due April 22. A hearing over whether the lawsuit should continue in Sydney or be moved to Perth is scheduled for April 30 in Sydney.

Citic Pacific has disputed Palmer’s claims saying in its 2012 annual report that changes in the iron ore market make it impossible to calculate the amount owed under the contract with Mineralogy. Palmer said last year he expected to eventually receive $500 million a year in royalties from the mine.

The Western Australia case is Mineralogy Pty v Sino Iron Pty. CIV 2338/2012, Supreme Court of Western Australia (Perth).

To contact the reporter on this story: Joe Schneider in Perth at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

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