All Images: CITIC Pacific Mining.
BY CAMERON DRUMMOND
A LEGAL stoush between Mineralogy and CITIC over royalty payments from the Sino Iron project is awaiting decision by the WA Supreme Court, and could affect up to 2600 workers currently involved with the operation.
Although beleaguered by mounting costs, court battles and a volatile iron ore price, CITIC Pacific Mining remains confident its Sino Iron project in the Pilbara will become a stalwart of the WA mining scene, contributing 24 million tonnes per year (mtpa) of magnetite ore to its steelwork counterparts in China.
Headquartered in Perth, CITIC Pacific Mining (CPM) was established to manage the construction and operation of the Sino Iron project, an integrated mining, processing and port operation that CPM believed would secure a long term stable source of quality materials for the Chinese special steel mills owned and operated by its parent company, Chinese-owned CITIC Limited (CITIC).
Hong Kong-listed CITIC Limited is China’s largest conglomerate, comprising financial services, resources and energy, manufacturing, real estate and infrastructure, engineering contracting, and other businesses in China and overseas.
In 2006, CITIC reached a deal with Clive Palmer’s Mineralogy to mine 2 billion tonnes of magnetite iron ore at Cape Preston, 100km southwest of Karratha in WA’s Pilbara region.
Sino Iron is the largest magnetite mining and processing project in Australia and has a mine life of more than 25 years.
It includes Pilbara’s first greenfields port development in 40 years, a 51 gigalitre desalination plant, 450 megawatt (MW) combined cycle gas-fired power station, and a 30km slurry pipeline.
At full production, Sino Iron was expected to have an output of 24mtpa.
An ongoing legal battle between CITIC and Mineralogy over royalty agreements was heard by the WA Supreme Court in June.
The dispute goes back to mid-March 2006, when CITIC and Minerology discussed a deal that would see the Chinese group take an 80 per cent interest in the Sino Iron project.
After weeks of negotiations – where Mr Palmer had once apparently “stormed out” of meetings over the deal – CITIC paid Minerology $US415m up front to mine 2 billion tonnes of ore from the project, and a consideration of two ongoing royalties linked to production value from the project.
After years of battling red tape and a blown-out development cost of more than $US10bn – four times its initial project cost – production then began in 2013.
Three years later Mineralogy launched a claim against CITIC for alleged unpaid royalties.
The Brisbane Supreme Court dismissed the allegations made by Mineralogy in March last year, however Mr Palmer then brought the claim to the WA Supreme Court, with proceedings concluding in late June this year.
The legal stoush is related to Royalty B, a value-linked charge CITIC stated relied on a now-defunct annual benchmark pricing system that was disbanded in 2010.
The Chinese industrialist argued the original Royalty B agreement should be struck from the deal and replaced by a “fair and reasonable” royalty based on the project’s profitability, rather than a dollar price per tonne.
Royalty A, a 30 per cent per tonne payment, currently sees Mineralogy collect about $10 million a year from CITIC.
However that payment itself could be under threat, as CITIC revealed the Sino Iron project had recorded a further $US1 billion loss in the 2016 calendar year, and had mounting pressure to develop the project into a more viable operation.
In a sworn affidavit, Sino Iron head of sustainability and planning Malcolm Northey told the court Sino Iron would be suspended at the end of 2017 if the mine’s financial position didn’t improve. He also stated that Mr Palmer had delayed approvals needed for a critical expansion of the mine’s tailings dam.
The three-week trial concluded on 30 June, with WA Supreme Court judge Kenneth Martin to decide on the matte; a decison that could have major consequences for not only CITIC and Mineralogy, but also Sino Iron’s 2600 strong workforce.
In May 2016, Sino Iron achieved a significant milestone when lines five and six joined the other four lines in producing premium magnetite concentrate.
CITIC Limited chairman Chang Zhenming said focus would turn to ramping up production and maximising efficiencies across all lines.
“There’s still a lot of work to do [and] it will take time to optimise line performance but we’re headed in the right direction,” Mr Zhenming said.
“This project represents the realisation of the next phase of iron ore production in WA.
“We have shown it is possible to produce steel from resources in WA that have been considered low value until now.
“This type of production will be the way of the future and underpin WA’s long-term competitiveness as a premier iron ore province.”
From January 2016 to the end of February 2017, more than 13 million wet metric tonnes (wmt) of premium magnetite concentrate had been delivered to CITIC steel plants and other steel mills in China.
CPM has requested approvals from its landlord Mineralogy, which include increasing Sino Iron’s tailings and waste-drop storage capacity, as well as increases to the capacity of its existing stockpiles and infrastructure at the Cape Preston export facility.
“In the year ahead, Sino Iron will continue to optimise its production capabilities by increasing production, maximising efficiency and lowering operating costs as it seeks to achieve the appropriate economies of scale,” the company said in a statement.
CPM chief executive Chen Zeng recently visited the facility for WA in Jandakot, presenting Royal Flying Doctor Service (RFDS) chief executive Grahame Marshall with a $50,000 cheque on behalf of staff for its medical transportation services to isolated areas of Western Australia.
It was also an opportunity for Mr Zeng to update Mr Marshall on construction of the new aerodrome at the Sino Iron project.
For the past three years, CPM said it had focused fundraising efforts on a not-for-profit organisation. In 2016, the RFDS was identified as a worthy recipient, and funds were raised dollar-for-dollar between staff and contractors, and CPM.
Mr Zeng said there were strong synergies between the work of the RFDS and Sino Iron.
“We’re a relatively isolated mining, processing and export operation, with 2600 direct and indirect employees,” Mr Zeng explained.
“We understand that fast, reliable and high-quality emergency response capability is critical for the best possible health and safety outcomes.
“It’s a big part of why we’re investing in a new aerodrome – cutting travel time between site and city medical facilities, where every minute can be vital.
“Our staff really appreciate the good work RFDS does for regional communities [and] we had no hesitation making the service the focus of our fundraising efforts.”
Mr Marshall thanked CPM and staff for their support.
“The fact that staff right across CPM gave so generously demonstrates just how important the Flying Doctor is in giving people peace of mind, no matter where they are throughout our vast State,” Mr Marshall said.
“This money will allow us to continue to provide the finest medical care and life saving outcomes to 65,000 Western Australians every year, ensuring we can be there whenever they need us, wherever they are.”