by: Sarah-Jane Tasker and Scott Murdoch From: The Australian December 21, 2012 12:00AM
METALLURGICAL Corporation of China is shelving its $3 billion iron ore project in Western Australia and pulling its staff out of Perth as rising costs put the brakes on another resources operation.
The company, which purchased the Cape Lambert iron ore project from Perth businessman Tony Sage's company in 2008 for $400 million, has reportedly said it will close its office in Perth by the end of next month, leaving no more than five people in a new smaller location to maintain its Australian mining licence.
The project is one of several Chinese-controlled projects in Australia that has faced soaring costs and delays. MCC is also the contractor for Citic Pacific's $8bn Sino Iron project, which was originally forecast, in 2006, to be a $2.5bn development.
In Beijing, the state-owned MCC refused to comment to The Australian on the decision to withdraw from the Cape Lambert project. However, the move did not surprise analysts, who said MCC was too confident that iron ore prices would remain strong when it committed to the project. Digital Pass $1 for first 28 Days
Zhang Jiabin, an analyst at Umetal.com, one of China's major steel industry research firms, said MCC had also been hit by persistently high labour and development costs.
"Their overall development costs have been rising all the time," Mr Zhang said.
"The company was not allowed to import Chinese workers to work there, the cost of electricity, water and railway construction seems to be an endless black hole."
China's iron ore interests in WA have all been hit by delays and cost blowouts and the economic powerhouse is said to now be more cautious about overseas investments in iron ore assets.
In WA's Mid-West region, Sinosteel was forced to put its $US2bn ($1.9bn) Weld Range project on hold last year because of the massive delays and cost overruns at the Oakajee port and rail development. Gindalbie Metals' joint venture with China's Ansteel was also hit by a cost blowout.
MCC outlined its plans for the magnetite project in September 2010, flagging that it expected to start construction this year, with first exports in 2015.
The company had said the project, which is 20km outside Karratha, would need a workforce of between 2000 and 2500 during the construction phase and a permanent workforce of 800-1000.
MCC, which is planning to produce 15 million tonnes of magnetite concentrate a year at first, with the potential to lift output to 25 million tonnes a year, is now said to be seeking a strategic partner for the project.
Mr Zhang said MCC would require the iron ore price recovery to be maintained for MCC to give it the go-ahead once again.
"The iron ore price needs to remain above $US100 a tonne for rather a long time, which the industry is not really assured of," he said.
"The company over-estimated the optimistic development of the steel industry and over-estimated the market demand."
A move to begin restocking by some Chinese mills helped to push the iron ore spot price yesterday to $US135.50 a tonne, the highest in nearly six months.
The major mills have started to deplete their inventories that were built up when the iron price plummeted in September.
Reuters reported that China's 78 big steel mills, which account for about 80 per cent of the total output, raised the average daily output by 1 per cent to 1.657 million tonnes in the first 10 days of this month.
It said smaller mills cut their output by 9.7 per cent.
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