Citic Pacific posts 9.1pc rise in profit
Over-budgeted iron ore project dark spot as company reports9.1 per cent profit rise
Citic Pacific, the steel-to-property conglomerate of Beijing-backed Citic Group, may book impairment losses on its much-delayed and over-budgeted Australian iron ore project in the coming years after the project's losses widened.
Citic Pacific chairman Chang Zhenming yesterday told reporters the amount of losses would depend on future year-end iron ore prices, production volume and the pace of construction of four production lines.
Chang gave the remarks after the company posted a 9.1 per cent rise in net profit to HK$7.59 billion, boosted by a HK$2 billion gain from the sale of a stake in its telecommunications unit.
Analysts polled by Bloomberg forecast iron ore price would fall to US$102 a tonne by 2017 from US$135 last year because of plentiful supplies from Australia and Brazil.
A Citi research report estimated the Australian project would break even at US$108 per tonne of ore sold, after interest costs.
Citic Pacific president Zhang Jijing said the firm had so far spent US$9.9 billion on the project - China's largest investment in Australia and its largest resource investment globally. The original budget was US$2.47 billion.
The first two production lines, each with annual output capacity of four million tonnes, have been built. Four more lines of the same capacity are expected to be completed by the end of 2016, so the project will be big enough to be cost competitive.
Net loss at the Australian mining unit climbed to HK$1.62 billion from HK$781 million in 2012, as the unit saw capitalised interest expenses and asset depreciation charges after it began shipping ore in December. Excluding the gain on the telecommunications sale, net profit would have been HK$5.5 billion, 20.8 per cent lower than in 2012.
The company's bottom line was helped by strong profits at its special steel manufacturing unit, which soared to HK$1.76 billion from HK$211 million, while profit from its energy business - mainly power generation - grew 60.4 per cent to HK$1.82 billion amid steep falls in coal prices.
A final dividend of 25 HK cents per share was declared, taking the total payout for the year to 35 HK cents, compared with 45 HK cents in 2012.