CITIC to appeal $US149m Sino Iron ruling

CITIC to appeal $US149m Sino Iron ruling

Tue, 30/01/2018 - 17:40
magnetite stockpile

Magnetite stockpiles at the Sino Iron project in the Pilbara. Photo: CITIC Pacific

Iron ore producer CITIC Pacific Mining will appeal a Supreme Court ruling to pay Queensland businessman Clive Palmer’s Mineralogy $US150 million in unpaid royalties over the Sino Iron magnetite project in the Pilbara.

In November, the Supreme Court of Western Australia ended a long-running dispute over royalties at the Pilbara mine, part of an original mining agreement signed in 2006.

One of the royalty streams in the agreement was based off annual benchmark iron ore prices negotiated between Australian and Brazilian iron ore producers and their Asian customers, a system which ceased in 2010.

CITIC and Mineralogy were not able to reach agreement on what royalty system should replace it, resulting in the Supreme Court action.

The Supreme Court subsequently ordered CITIC to pay Mineralogy $US149 million, a figure calculated on spot iron ore prices.

This week, CITIC Pacific Mining chief executive Chen Zheng said that judgement was disappointing and had serious ramifications for the Sino Iron project’s viability.

“We owe it to our 2,600-strong workforce, our shareholders and the wider Western Australian community to pursue all avenues of appeal,” Mr Zeng said.

“Different royalties are payable to Mineralogy and the state. It is important that the overall royalty burden is fair and reasonable to the project and royalty recipients.”

Mr Zeng said CITIC Pacific had been pleased with the significant progress it had made in recent months at the Sino Iron mine, with all six of the project’s processing lines in operation and more than 16 million tonnes produced in 2017.

However, Mr Zeng said despite the progress, the mine, which CITIC has investment more than $US12 billion developing, was still not profitable.

“Because we’re processing low-grade ore into a high-grade premium product, we’re a higher cost producer compared to traditional dig-it-up and ship-it-out operations,” Mr Zeng said.

“We’re still ramping up and the fact is, right now, we’re not yet profitable.”

Mr Zeng said considerable doubt still hung over the project, relating to the royalties dispute, as well as an impasse over mine expansion approvals, which CITIC has accused Mineralogy of deliberately slowing the process.

“Our parent company has been very patient – they are conscious of the project’s progress to date and understand the potential long-term benefits, if we can overcome these challenges,” he said.

“But they’ve made it very clear that, like every other asset in the group, we must demonstrate financial sustainability.

“If we’re not commercially viable, we don’t have a future. Right now we are focused on this goal.”