China metallurgical giant facing $450m claim

BEIJING -- The Metallurgical Corp of China Ltd, the country's leading metallurgical conglomerate, is likely to face a claim of up to $450 million from its proprietor for project delays, according to a report carried in Monday's Investor Journal.

MCC, contractor of the Sino Iron project in western Australia, has been embroiled in a dispute with its proprietor, the CITIC Pacific Ltd, a steel and property conglomerate controlled by China's State-owned CITIC Group, which accused MCC of failing to complete the project on time.

Related reading: CITIC Pacific's Australia iron ore delayed again

An agreement over the $1.75 billion Sino Iron project was signed by Sino Iron Pty Ltd, a subsidiary of CITIC Pacific Ltd and MCC, in August 2007. But the project had been postponed several times.

Both parties have blamed the other for the delay.

According to previous media reports, CITIC Pacific Chairman Chang Zhenming said the key technology of mineral processing was the major cause for the delay, along with factors including a lack of experience and equipment transportation delays caused by extreme weather and hurricanes.

However, MCC blamed CITIC Pacific for lodging "unreasonable requirements", as most equipment has needed to be custom-made and its installation expensive and time-consuming.

To address the disputes, the two parties signed an additional contract that saw MCC promise to put the first production line into operation before Aug 31, 2012.

Under the contract, MCC agreed to pay CITIC Pacific more than $5 million, 0.15 percent of the contracted cost, for each day the project is overdue. Now that the project's completion is postponed to late November, the compensation will amount to $450 million, according to the report.

According to previous media coverage, CITIC Pacific Ltd did not make it clear whether it would lodge claims against MCC, saying "bringing the Sino Iron project into production as soon as possible" was its top priority.

Analysts attributed the project's delay to slumping iron ore prices as currently mining cost are running higher than spot prices.

"If the prices keep falling, making profits will be more difficult...MCC has been seeking excuses to delay the project," the report quoted an anonymous analyst as saying.

MCC is mired in dire financial straits as it reported a 186-million-yuan net profit loss for the first six months of 2012, down 109.45 percentage points?from the same period of last year.