CITIC sees massive funding injection

Chinese miner CITIC recently disclosed a massive injection of capital into the embattled Sino Iron project, made on April 1.

Costs in the project have surpassed $US12billion, as reported by the AFR, although $US2.5 billion has already been written off the value of the project in March due to economic considerations such as the plunge in the price of iron ore.

Still involved in a protracted and very public legal dispute over royalties with Clive Palmer-owned mine developer Mineralogy, CITIC Pacific are also ebroiled in a dispute with their lead contractor China Metallurgical Group Corporation (MCC).

The original plan offered by Mineralogy was for a $US2.9 billion turnkey construction contract, however CITIC commissioned MCC under the apprehension the company could further save on costs.

However, a fixed $US3.4 billion contract with MCC resulted in cost overruns of $US858 million, with delays blamed on adverse weather and “typhoon”, and problems with electric motors purchased by CITIC.

Fortunately the mine has been exporting magnetite since January 2014, capitalising on project costs, however only two of the six planned production lines are operational.

The AFR said the income from export sales are not being booked as income or in operating cash flow, but rather directly against the capital expenditure for construction.

With the remaining four production lines to reach operational ability by the end of 2016, it has been anticipated that CITIC will not reveal the full extent of their operating losses until 2018 when full-year reports for 2017 are released.

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