Sino Iron Project CITIC Pacific’s Sino Iron Project will be a world class, large-scale magnetite iron ore mining and processing operation. Located near Cape Preston, 100km southwest of Karratha, in Western Australia’s Pilbara region, the project has over two billion tonnes of identified magnetite resources which can produce 27.6 million tonnes of concentrate and / or pellets annually (mtpa) for about 25 years. These products will be exported to CITIC Pacific’s three special steel plants in China and to other Chinese steel manufacturers. In addition to the existing identified resources, CITIC Pacific has options to purchase the mining rights to a further four billion tonnes if the reserve is proven, therefore, taking potential production to over 70mtpa. Processing on a new scale Managed by CITIC Pacific Mining, a wholly owned Australian subsidiary of CITIC Pacific, the US$4.2 billion Sino Iron Project is the largest magnetite project planned in Australia. It will be a highly technical operation requiring significant processing and supporting infrastructure. Processing infrastructure will include primary crushers, grinding mills, a concentrator and pellet plant. Supporting infrastructure will include a new port, port facilities, a 25 kilometre slurry pipeline, a product stockyard, a 450 megawatt gas fired power station and a 51 gigalitre desalination plant. CITIC Pacific Mining will conduct its own mining and has sourced some of the world’s largest mining handling equipment including hydraulic excavators and diesel-electric haul trucks. The new port will include a transshipment facility to load ships with the product for export to China. The original estimated capital expenditure for the project was US$2.5 billion. The latest estimated capital expenditure is likely to be approximately US$3.5 billion. This increase is due to an expanded planned production of concentrate by 15% (production volume was originally anticipated to be 24mtpa and has now been increased to 27.6mtpa); specification modifications as a result of ore body characteristics; industry wide cost pressures and inflation in the global mining industry, especially in Australia; depreciation of the US dollar to the Australian dollar and to the RMB; and cost pressures and inflation in China where certain supplies are sourced. Since the commencement of our project in the second quarter of 2006, the global price of iron ore (fines) has increased from US cents 61.7 per dry metric tonne unit (dmtu) to US cents 132.7 per dmtu, amounting to a 115% increase, which is more than sufficient to cover the escalation in capital costs. Given the current price trend of iron ore, we believe there will be further positive impact on the business model. CITIC Pacific’s steel plants would also benefit from the stable supply. Iron Ore Mining Open pit mine Primary crusher Coarse ore pile Grinding mills Magnetite concentrator Slurry pipeline Dewatering & pellet plants Magnetite concentrate & pellet stockpiles Conveyor Ore barges Trans-shipment loading barge Bulk carrier Sino Iron Project – Magnetite mining and processing for export Business Review 14 CITIC Pacific Summary Financial Report 2007 Environmental approval given (to previous proponent company) CITIC Pacific purchases initial mining rights CITIC Pacific Mining formed Foreign Investment Review Board approval granted Exploration drilling progam commenced Major Project Status granted by Australian Government Signed construction contract with MCC MCC acquired 20% equity in project Bulk sample of ore for production testing commenced Geotechnical drilling continues Further environmental management plans approved State Agreement Act amendments Construction commences First shipment of product to China Progress in 2007 CITIC Pacific’s mining rights were increased from one to two billion tonnes in a further agreement signed in 2007. In August 2007, the lead engineering construction contractor for the Sino Iron Project, China Metallurgical Group Corp. (‘mcc’), entered into a sales and purchase agreement to acquire a 20% equity interest in the project (subject to the approval of the Chinese and the Australian governments). The construction contract with mcc was also extended from the initial one billion tonne to the current two billion tonnes. Key government approvals for mining and environmental components were advanced in consultation with the Western Australian government. In November 2007, CITIC Pacific Mining and the Sino Iron Project were publicly launched in Australia. At the Pilbara mine site in December 2007, a bulk sample started that will move seven million tonnes of material. A representative sample will be sourced from this material to confirm earlier test work carried out using drill core samples. These results will be used to confirm the technical specifications for the processing equipment design. Major design work in both Australia and China on the processing elements of the project is advanced, as well as resource development and mine planning. Construction has commenced on the first of six mill lines and crushers at CITIC Heavy Machinery in Luoyang and the magnetite concentrator at netc in Anshan. Long lead items, including gas turbines and gas line pipe, have already been ordered, and key construction contractors have been identified for the gas pipeline, power plant and desalination plant. Timeline CITIC Pacific Summary Financial Report 2007 15 Also in 2007, CITIC Pacific Mining purchased the Mardie pastoral station, on which the mine area and processing infrastructure is located. Ownership of the station will improve access to land and also presents opportunities for environmental improvement programs to be implemented. Looking ahead Subject to relevant Western Australian government approvals, construction is scheduled to begin in 2008 to allow production of the first magnetite concentrate from the first mill line in 2009 / 2010. The remaining mill lines will be commissioned progressively from 2010. The desalination plant engineering and procurement is progressing and some of the long lead items have been ordered. First water from the desalination plant is expected to be available in 2009. Additional geotechnical drilling will also take place to further define the mine’s ore body. 2500 jobs are expected to be created during the project’s construction phase, and 600 operational jobs over the mine’s 25-year life. In 2008, CITIC Pacific Mining plans to sign a joint venture agreement with Central Mining and Contracting, a Pilbara-based indigenous mining contractor who is currently providing various mine services to the project. This joint venture will ensure local indigenous people benefit through employment, training and business opportunities in the future. Strategic value to CITIC Pacific The Sino Iron project, in conjunction with CITIC Pacific’s recent order of 12 ships for its iron ore delivery, will guarantee a secure supply and transportation of raw materials for the Group’s steel making operations in China. Magnetite is one of the principal ores of iron and the most magnetic of all the naturally occurring minerals on earth. Its magnetic properties allow it to be readily refined into an iron ore concentrate for use in steel making. In the conversion process, significantly less carbon dioxide is produced than with other iron ore types, making magnetite increasingly desirable in this era of environmental awareness. The iron ore products from the Sino Iron project will be suitable for specialty steel making where customers are seeking low levels of phosphorous and alumina. Building on the expertise that has been developed within the CITIC Pacific Mining team, in the future, CITIC Pacific will look at acquisitions or expansions that will build the company’s iron ore / resources
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