Citic Pacific, which has suffered major cost overruns at a major Australian iron ore project, says it is confident it can start up its first two production lines on time this year but will not rule out further rises in overall project costs.
Chang Zhenming, chairman of the Hong Kong-listed steel-to-property conglomerate that is controlled by state-owned Citic Group, said the full extent of engineering challenges would only be known when the first two of six planned production lines came on line and successfully boosted production.
'Our project is three to four times the size of China's largest iron ore mine, with a high degree of automation... it is also the first large-scale magnetite iron ore mine to be commercialised in Australia,' he added. 'It is only natural for such an unprecedented project to have difficulties.'
Magnetite contains lower iron content than conventional ore mined by Australia's mining companies, and needs processing before it can be used by steelmakers. The mines with the best quality ore had been snapped up by the mining giants by the time Citic Pacific joined the fray, Chang said last August. It amassed a portfolio of iron ore mining rights in West Australia's Pilbara region six years ago. In 2007, it contracted state-owned construction contractor China Metallurgical Corp (MCC) to build ore mining and processing facilities for US$1.75 billion.
The project has strategic value to rapidly industrialising China, which depends on imports for 59 per cent of its iron ore consumption, compared to 15 per cent in 2000. Domestic ore contains much lower iron content than imports, which means it requires expensive processing to match the quality of imports.
MCC's four-year budget doubled to US$3.41 billion, hit by surges in the costs of material, labour, and management and by the rising Australian dollar, and also reflecting miscalculations by MCC.