Chinese conglomerate Citic has warned it may suspend operations at its Sino Iron mine in Western Australia if it can’t resolve legal disputes with Australia’s Mineralogy over royalty payments and land access.
Citic chairman Chang Zhenming said, in a letter to shareholders on Tuesday about the group’s first half results, that Sino faced “unique challenges with privately-held Mineralogy,” whose “uncooperative and adversarial approach poses a threat to the future of Sino Iron.”
Citic paid Mineralogy, founded by the embattled Australian businessman Clive Palmer, US$415 million in 2006 for development rights for the Sino Iron mine, and agreed to pay Mineralogy royalties.
However, the project – China’s largest overseas mining investment – ran years late and came in nearly US$7.5 billion over budget. The mine is targeting 15 million tonnes of iron ore this year, still well below its ultimate target of 24 million tonnes.
Chang said Sino Iron had been seeking Mineralogy’s assistance to obtain government approvals to use more land for waste storage, without success.
“Mineralogy’s refusal to cooperate means that we will run out of space for waste and tailings storage in the near future. This will severely constrain operations and impact Sino Iron’s sustainability,” he said.
Citic is also battling Mineralogy over royalties.
Mineralogy claims it is owed money by Sino Iron after the two sides failed to agree to a formula for calculating the value of what is mined following a shift in pricing in the iron ore market.
The matter was heard by the Westen Australia Supreme Court in June and both sides are awaiting a judgement that will determine a formula. The court has not said when it will decide.
The disputes with Mineralogy, combined with an uncertain iron ore price, “could jeopardise Sino Iron’s viability and, in the worst case, lead to suspension of our operations,” the letter said.
“We are doing everything within our power to avoid this undesirable outcome. However, the potential risk is real.”
A spokesman for Palmer declined to comment.