CITIC Pacific has confirmed that China’s first iron ore mine in Australia, Sino Iron Ore in the Pilbara, has escalated by nearly $1billion in cost.
The Chinese company put the US$835 million price escalation down to increasing industry costs, making clear its position on the unforeseen jump in price.
“We are clearly unhappy about this cost increase, however we are confident that we have identified the problems, which have been due to the changing cost environment,” CITIC Pacific chairman Chang Zhenming said.
CITIC has signed a supplemental agreement with the Metallurgical Corporation of China (MCC), which will see CITIC pay the additional US$835 million to MCC for rising costs in engineering, procurement and construction of the mine.
The current US$1.75 billion contract was signed in August 2007, however since that time demand for iron ore has skyrocketed, increasing labour costs, with the contract price of iron ore rising almost 140% alone.
Despite the cost blowout, CITIC expects that the “the underlying logic and exciting prospects of this investment will be undisturbed by the announcement.”