Citic Pacific backed by judge on day one of iron ore royalties case
Judge says on day one of hearing in ore dispute he is struck by the 'unreality of proceedings'
Eric Ng and Bloomberg in Perth
A judge has expressed reluctance to let the Australian tycoon Clive Palmer cancel a A$215 million (HK$1.71 billion) mining right transfer agreement signed seven years ago with the Beijing-backed property-to-steel conglomerate Citic Pacific over Citic's failure to pay royalties.
Citic Pacific has already spent A$7.1 billion on infrastructure on the site in Western Australia owned by Palmer, and expects to start shipping processed ore next month, three years later than planned, after construction delays.
A two-day court trial began yesterday in Perth, after Palmer's company Mineralogy filed a law suit seeking a court order that would let it terminate the land use and mining rights of Citic Pacific's Sino Iron division according to the agreement of 2006.
However, in the Western Australian Supreme Court, Justice James Edelman said at the conclusion of the first day in court: "I would have real difficulty making the declaration as sought." He ordered both sides to file additional evidence in writing by Friday.
According to the agreement made in 2006, Sino Iron agreed to pay Mineralogy a royalty quarterly on raw ore "taken" by Sino Iron, made up of a payment of 30 Australian cents per tonne of ore taken, and an additional royalty based on a formula using the volume of processed ore produced and its market price.
Citic Pacific agreed to start paying royalties on extracted ore after it was crushed and weighed. Palmer claims that the royalty is due when the ore is removed from the ground. Citic Pacific's lawyer said the firm will pay the royalty if it is found liable.
Judge Edelman said he was struck "by the unreality of these proceedings", since Citic Pacific had agreed to pay, and the amount in dispute was only the outstanding interest payable from the time difference on when the payment should have begun according to the two parties.
In addition to the base royalty, Citic Pacific would be liable to a penalty royalty on six million tonnes of ore if it fails to produce that amount by March 21 this year, the agreement said. It was due on Monday.
Mineralogy is claiming a penalty royalty of A$200 million, in a separate law suit in New South Wales. A hearing is scheduled on whether the case should continue in Sydney or move to Perth.
Citic Pacific, the Hong Kong-listed flagship of the state-owned Citic Group, said in its latest annual report that "due to changes in the iron ore market" the amount of penalty royalty cannot be calculated.
Citic Pacific paid Palmer A$215 million for the right to mine one billion tonnes of iron ore at the Sino Iron project. It also paid him A$400 million for the right to mine an additional two billion tonnes of ore. If Citic Pacific fails to produce six million tonnes at another site by March 21, 2015, it will be liable to a similar penalty.