Companies and Markets CITIC plagued by delay, cost blowout Ayesha de Kretser and Jamie Freed 459 words

6 January 2012 The Australian Financial Review AFNR First 36 English Copyright 2012. Fairfax Media Management Pty Limited. China's CITIC Pacific has flagged yet another delay and confirmed further cost blowouts at its Sino Iron project in Western Australia, as the Beijing government again warns Chinese companies about overpaying for iron ore assets. CITIC said it would pay the project's engineering, procurement and construction contractor, China Metallurgical Corporation (MCC), $US822 million after getting a claim last July for an extra $US900 million to complete the project. The settlement takes the total development cost for Sino Iron from around $US5.2 billion to just over $US6 billion. MCC has committed to bring the first of six production lines on stream no later than August 31, as part of the agreement. When the dispute emerged last July, CITIC said the project, which had until then been scheduled for start-up at the end of 2011, would still be operational by the first half of 2012. The delay opens up the prospect that rival magnetite developer Gindalbie Metals, which is backed by China's Anshan Steel, will beat CITIC to market with its first ore. Gindalbie has also suffered delays but remains on track to complete the first, 8 million tonne a year stage of the Karara magnetite project by the September quarter. CITIC said a second line was expected to be operating by December 31, but it was still examining the time line and possibility of using different suppliers to bring the remaining lines into production. "CITIC Pacific is still working to determine the estimated completion and commissioning timetable for production lines three to six," the company said. "For these lines, CITIC Pacific will continue to explore working with MCC but will also examine other alternatives, including working directly with local contractors." CITIC bought the rights to mine Sino Iron from billionaire mining magnate Clive Palmer in 2006 for $US400 million, in what was then the biggest direct Chinese investment in Australia's resources. Another Chinese state-owned company, Sinosteel, has a project on care and maintenance while it waits for an infrastructure solution at the troubled Oakajee Port and Rail project in WA's mid-west region. Gindalbie is also expected to ask Anshan for a top-up to its debt facility to cover exchange rate fluctuations before Karara is completed. As the casualties continue to mount, China's Ministry of Industry & Information Technology warned against paying too much for projects that do not have good access to infrastructure. "The over-valuing of iron ore deposits at present will increase the risks for Chinese steel firms in the long term in raw materials investments," Steel Business Briefing reported the Ministry of Industry and Information Technology as saying in a statement. Document AFNR000020120105e8160005o

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