If the below is true in relation to Chinee investment in WA magntite we could all be in for a much long(er) wait.......either that or Clive will need to offer up some more resource to enhance investor returns. *******************************************************
China's WA love affair sours
Peter Cai March 8, 2012 - 5:19PM
The Chinese love affair with Western Australian magnetite iron ore assets is fading fast as a result of massive cost blowouts and delays.
A flagship Chinese investment venture in Australia, the $7 billion CITIC Pacific’s Sino Iron project, has turned into an unending saga of discontent for the investor.
So far, it has cost the job of its former Chairman, Larry Rong, when his bet against the Australian dollar went sour and resulted in a loss of $HK15.5 billion ($1.9 billion).
The budget for the project has almost tripled from the initial $US2.5 billion estimate to US$7.1 billion, and there is every possibility that the cost will increase in the future.
Most importantly, the initial projected production date had been pushed back several times from early 2009 to the second half of 2012.
The entire Chinese steel industry and Beijing is watching the progress of the Sino Iron project closely. If it succeeded, it would be the first Chinese victory against the iron grip of an industry now controlled by BHP, Rio Tinto and Vale.
The significance of the project was made clear by the Chairman of CITIC Pacific, Chang Zhenming. He reported told a gathering of executives in Hong Kong that ‘‘Sino Iron simply cannot fail and a national team under the leadership of Hua Dongyi is racing against the clock to ensure the first production line will be operational August this year.’’
The Chinese investors have suspended all investments in magnetite projects in WA as of last year, according to the 21st Century Business Herald, citing a source from the State-owned Assets Supervision and Administration Commission, the ultimate shareholder of the China’s state-owned enterprises.
The massive cost overruns and delays are the result of flawed decision-making by the CITIC Pacific. It under-estimated the difficulty of investing in Australia and rushed into the project without sufficient due diligence.
One of key assumptions that underpinned the project fell apart quickly when CITIC discovered it couldn’t bring in Chinese engineers and workers to build the mines. The budget for the project then became hostage to soaring labour costs in WA.
CITIC Pacific had also failed to take into account the need to build an expensive desalination plant for the project and compliance costs associated with tough environmental standards in Australia.
ARH Price at posting:
18.0¢ Sentiment: Hold Disclosure: Held
