Citic keen to realise Pilbara iron dream6th January 2007, 9:15...

Citic keen to realise Pilbara iron dream
6th January 2007, 9:15 WST

Citic Pacific, the Hong Kong conglomerate headed by Chinese billionaire Larry Yung, said yesterday it was pushing full steam ahead with its plans for a $US2.5 billion ($3.2 billion) Cape Preston iron ore project in the Pilbara.

The move is part of the quest by Chinese steelmakers to escape their dependence on mining giants BHP Billiton, Rio Tinto and CVRD of Brazil.

Owned 29 per cent by China’s biggest overseas trading groups, Citic Pacific in July paid Australian businessman Clive Palmer $290 million in cash for the initial mining rights to one billion tonnes of magnetite at its Balmoral deposits, south of Cape Preston, where it plans to build WA’s first magnetite mining and processing venture by 2010.

It also holds options to mine up to six billion tonnes and expects the venture to become China’s single biggest direct investment in Australia’s iron ore industry over the next few years.

Speaking from Hong Kong yesterday, Citic Pacific managing director Henry Fan said the company had been working flat out at Cape Preston since the deal had been struck, with an intensive drilling program under way to confirm reserves ahead of a decision to exercise its rights to a second billion tonnes.

“We have been doing some more drilling and so far the outcome has been encouraging in terms of confirming stage two of the project, involving another one billion tonnes, although a final decision is yet to be taken,” Mr Fan told WestBusiness.

Under its agreement with Mr Palmer’s private Mineralogy group, Citic must pay another $US200 million in July for the rights to the second billion tonnes. It can also take up the rights to another four billion tonnes in $US200 million instalments in subsequent years.

Crucially, Mr Fan revealed Citic had locked in a long-term financing agreement to develop the project and had selected its lead construction contractor.

“The financing is for 100 per cent of the project cost on a 25-year basis from a mainland (China) bank,” he said. Citic also expected to bring in a mainland steel producer as a 50 per cent partner “subject to reaching agreement on joint venture terms, which are still ongoing”.

But those discussions would not affect progress, he said.

“In any event, Citic would retain management control of the project and we are spearheading full speed irrespective of the outcome of the joint venture discussions,” Mr Fan said.

Citic has previously forecast the cost of the initial magnetite mine, concentrator and pellet plant at $US1.37 billion, with the second stage forecast to cost $US1.1 billion.

Mr Palmer said in July total investment in the project should ultimately top $7 billion, with export revenues from stage one alone expected to pass $1 billion a year.

Mr Palmer will remain the biggest beneficiary, with Mineralogy entitled to royalties of up to $600 million a year once the project is fully developed, at a rate of 30¢ a tonne of ore mined. Mineralogy will also be entitled to 6-10 per cent of production volumes.

Citic is one of several Chinese groups backing new iron ore developments in WA to secure independent ore supplies for China’s steel industry.

In the Mid-West alone, Anshan Iron & Steel is partnering Gindalbie Metals in the planned $1 billion Karara magnetite project near Geraldton, SinoSteel has teamed with Midwest Corporation for the Koolanooka and Weld Range projects, and ore trader Sinom has acquired Mt Gibson Iron’s Extension Hill magnetite project.

JOHN PHACEAS



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