CITIC Pacific sees iron ore scheme cost rise again 355 words 30 December 2011 21:12 Reuters

News LBA English (c) 2011 Reuters Limited HONG KONG, Dec 30 (Reuters) - CITIC Pacific Ltd said it will pay an extra $822 million to contractor Metallurgical Corp of China Ltd (MCC), further inflating the construction cost of its Sino Iron project in Western Australia by nearly one-third to $3.41 billion. The third price increase since the contract was signed in 2007 was necessary because MCC did not take into account the full impact of foreign-exchange volatility and cost inflation for items such as labour and equipment, it said in a statement on Friday. Analysts said CITIC Pacific, a steel maker and property conglomerate controlled by China's state-owend CITIC Group, had been negotiating with MCC on a $900 million cost increase, so the news was not unexpected. Shares of CITIC Pacific ended the year down 31 percent, underperforming the blue-chip Hang Seng index's 20 percent fall. The additional payment was for MCC Mining, a unit of MCC, to complete the first two production lines and common facilities for the whole six production lines, CITIC Pacific said. Although disappointed with the performance of MCC Mining, continuing to work with it on the project was the most cost-effective approach, CITIC Pacific said. "It is crucial that the first and second lines commence production as soon as possible. Replacement by another contract would just result in extensive delays," CITIC Pacific said. MCC Mining aims to complete the first production line by May 31, with a commitment that the first and second lines commence production by August 31 and December 31 respectively, it added. CITIC Pacific had targeted the middle of 2010 for first production at Sino Iron, which will be Australia's biggest magnetite mine. The initial general construction contract for the project was signed in January 2007, with an estimated value of $1.1 billion. This increased to $1.75 billion in August 2007 and $2.59 billion in May 2010, due to tight labour market conditions and higher costs for equipment and other items. (Reporting by Alison Leung; Editing by David Hulmes) CITIC/MCC Document LBA0000020111230e7cu000jn

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