CITIC Pacific's Australia iron ore delayed again

CITIC Pacific Ltd, the conglomerate building the world's largest magnetite iron ore mine, said it has delayed production for at least the second time, hindered by Australia's safety standards and labor shortages.

Trial production will start in November instead of later this month, the Hong Kong-listed company said on Thursday in a statement. Difficulties include strict commissioning requirements in certification and safety standards, and a lack of technicians, it said.

CITIC Pacific logo is displayed on paper documents. The conglomerate said on Thursday that it has delayed its Australia iron ore project for at least the second time, hindered by Australia's safety standards and labor shortages. [Photo/Agencies]

CITIC Pacific's $8 billion Sino Iron project has been beset by problems, including a more than four-fold blowout to the budget and currency hedging that cost HK$14.6 billion ($1.9 billion). The mine, being built by China Metallurgical Group Corp, was originally slated to begin output in the first half of 2011.

"It's a huge project and difficulties in planning, construction and transportation are well beyond our original preparation," CITIC Pacific Chairman Chang Zhenming said in Hong Kong on Thursday. The mine's total cost will be less than $10 billion, he said. The company had spent $7.8 billion on the mine by the end of June, Managing Director Zhang Jijing said on Thursday.

The Sino Iron project cost has risen to about $8 billion, Rob Cory, a spokesman for the company's Perth-based mining unit, said last month.

CITIC Pacific, the steelmaker and property group controlled by China's biggest state-owned investment company, said last July that it was delaying the mine's startup and revealed that costs had risen 35 percent more than expected.

"The commissioning process for an iron ore mine in Australia is very different from that in China," CITIC Pacific said in the statement. China Metallurgical Group Corp "is responsible for the processing area, which remains the primary cause of the delay," it said.

Australian mining magnate Clive Palmer sold the rights to the project to CITIC Pacific in 2007 for $200 million. Palmer stands to receive monthly royalty payments of $20 million from August, regardless of whether CITIC'S mine is in production, his private company Mineralogy Pty confirmed in an e-mail on Thursday.

CITIC Pacific reported a 9 percent decline in first-half profit to HK$5.48 billion on lower steel demand and property income. Profit from CITIC Pacific's steel unit declined 63 percent in the period.

"We expect the rest of 2012 will continue to be tough" for the steel business, the company said. Profit from the property unit in the mainland fell 68 percent from a year earlier, it said.

CITIC Pacific's profit also includes a HK$2.5 billion gain from its stake sale in CITIC Guoan and an investment property revaluation of HK$909 million, it said.

Bloomberg