Australian write-down costs MCC 3 billion yuan
Contractor, Citic Pacific await report assigning responsibility for delays to Sino Iron project
Metallurgical Corporation of China (MCC) has written off three billion yuan (HK$3.76 billion) on its much-delayed Sino Iron project in Western Australia, which recently went over budget for the fourth time.
The construction contractor veered to a 6.95 billion yuan loss last year from a 4.24 billion yuan profit in 2011, mainly due to write-offs on its Cape Lambert iron ore project in Australia, Huludao nonferrous project in Liaoning province and Sino Iron.
Its sales slipped 2.6 per cent year on year to 216.24 billion yuan.
Chairman Jing Tianliang said the provision was to cover only the delay and budget blowout, excluding the potential compensation sought by the operator of the Sino Iron project, Citic Pacific, which hired MCC.
"According to the agreement, we are obliged to compensate Citic Pacific US$5.1 million per day for the delay in construction, which would translate to US$530 million in total," Jing said.
"Both of us agreed Citic Pacific and MCC are responsible for the delay, so we will seek consensus in a friendly manner."
If that fails, MCC could face further compensation costs for the project and would need to make additional provisions.
A third-party due diligence report will be released later this year to assign responsibility for the project delay between MCC and Citic Pacific.
The budget for Sino Iron was raised for the fourth time in February to US$4.35 billion.
Jing said that, among other reasons, construction was disrupted by three typhoons that forced the evacuation of all on-site workers.
The first production line was delayed for more than two years and produced its first shipment of iron ore late last year, and the second production line is scheduled to undergo a trial run this month, followed by commercial production in May.
Jing said that for the rest of the four production lines, MCC will be responsible only for the design and construction work, while management will be Citic Pacific's responsibility.
Clive Palmer, chairman of Mineralogy, whose threat to terminate the mining rights and lease agreement at Sino Iron was blocked by an Australian court, said last week Citic Pacific is trying to avoid payments over the delayed project because it is in financial difficulties.