citic

Hurdles for Citic's resource operation



Matt Chambers | May 27, 2009
Article from: The Australian

AUSTRALIA'S first Chinese mine development, the complex $US3.85 billion ($4.9 billion) Sino Iron magnetite project in the Pilbara region of Western Australia, has been delayed and is facing cost overruns but is still targeting first production next year.

The project, whose huge power requirements are underpinning Santos's nearby $800 million Devil Creek domestic gas project, is now expected to produce first iron ore concentrate in the third or fourth quarter of next year, back from a previous target of early that year.

When the project reaches its capacity of 27.6 million tonnes a year, developer Citic Pacific will become the fourth-biggest producer of Australian iron ore after Rio Tinto, BHP Billiton and Fortescue Metals Group.

Citic Pacific Mining chief executive Barry Fitzgerald said delays had largely been the result of the approvals process and that the development costs had risen $US350 million from its previous target of $US3.5billion.

While Rio's, BHP's and Fortescue's haematite ores are sold with little processing, Citic will have to concentrate its magnetite ore and grind it into fine particles at extra cost.

As a result, Citic, as well as planning one of the country's biggest open pit mines, is also building a concentrator, power station, desalination plant and pellet plant near Cape Preston, west of Karratha.

Mr Fitzgerald, who previously worked for BHP, said the rapid development of the project, which was in construction the year after iron ore rights were obtained, meant the schedule could still be hard to meet.

"It is going to be tough but I think we will do it," Mr Fitzgerald said at the mine site yesterday.

He would not say what the production costs would be at the ambitious project, which had been under construction for a year, or how long it would take to become profitable.

However, he said the recent slump in iron ore spot prices and an expected big fall in contract prices into China were not hampering the project.

"You have to recognise that this is a 25-year project," Citic Pacific's Mr Fitzgerald said.

Citic Pacific bought the rights to 1 billion tonnes of iron ore that will be processed at Cape Preston for $US215 million from Queensland mining entrepreneur Clive Palmer in 2006. A year later, it purchased the rights to a second billion tonnes for $US200 million and by the middle of last year had started construction on the project, which will be Australia's first magnetite project.

Hong Kong-listed Citic Pacific is two-thirds owned by China's state-owned Citic, and plans to sell all product from its Australian mine to China. About 10 million tonnes will go to Citic's three steel mills, about 5 million tonnes to 20 per cent Sino Iron owner China Metallurgical Group.