MCC Contributes $858 Million to Blow Out at Citic Iron Ore Mine
Metallurgical Corp. of China Ltd., the contractor building the world’s largest magnetite iron ore mine for Citic Pacific Ltd. (267) in Australia, said it would contribute $858 million after construction costs blew out.
Metallurgical will provide the money “to drive the project forward,” the Beijing-based company said late yesterday in a statement. Citic Pacific noted the comment in a separate statement, saying an independent assessor will determine the costs incurred by Metallurgical and “render an opinion on whether they were reasonable.”
Citic Pacific and Metallurgical, known as MCC, have been in dispute over delays and cost increases at Sino Iron, with Citic announcing last year a more than fourfold blowout to the budget to $8 billion. MCC said in a separate statement that the provision will result in a 3.1 billion yuan ($498 million) charge in its 2012 accounts, contributing to a 7.2 billion yuan annual loss.
“The nature of most large-scale projects usually results in certain claims by both the contractor and his employer and these are typically resolved at the completion of the project,” Citic Pacific said in its statement.
The first line at Sino Iron is now producing iron ore concentrate, with the first shipment expected next month, Citic Pacific said. The company aims to complete line two by May. Output was originally slated to begin in the first half of 2011, shipping to steel mills in China. Citic Pacific blamed difficulties in planning, construction and transportation for the increase in costs and delays.
Citic Pacific, controlled by China’s biggest state-owned investment company, rose 2.6 percent to HK$12.84 yesterday, trimming its loss in the past 12 months to 12 percent. MCC fell 1.1 percent, for a decline of 4.4 percent in the past year.
Australian mining magnate Clive Palmer sold the rights to the project to Citic Pacific in 2007 for $200 million. Palmer, who is also developing coal assets in Australia, stands to receive monthly royalty payments from the operation. That relationship has since soured, with Citic Pacific last year winning an injunction to stop Palmer’s Mineralogy Pty Ltd. from terminating mining right and site lease agreements. A court hearing is expected to take place this year.
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