Hong Kong listed company CITIC Pacific Limited has announced that the company’s engineering, procurement and construction (EPC) contractor, China Metallurgical Group Corporation (MCC) for the Sino Iron project in Western Australia, has put forward a proposal for an additional payment of around $900-million to meet increased project costs and design changes.


The Sino Iron project, at Cape Preston, 100 kilometres south west of Karratha in Western Australia's Pilbara region, is one of China's most significant investments in the Australian resources sector and is the largest magnetite mining and processing operation under construction in Australia.


The project has over two billion tonnes of identified ore and targets exports of more than 27.6 million tonnes of high grade iron ore concentrate and pellets each year over its estimated projected mine life of 25 years.


The project involves investment in dedicated infrastructure including concentrate processing, pelletising, a 51 gigalitre desalination plant and port facility, as well as a 450 MW combined cycle gas fired power station.


CITIC said that while it was “clearly disappointed with the performance of MCC and any cost increase”, additional expenditure would be necessary to complete the project.


“The capital expenditure on building the mine is not a small sum, but compared with the total cost of operating the mine for its 25-year life, it is not very significant,”  a company statement said.


The statement said the increased costs were associated with rising labour prices, equipment costs and the Australian dollar. The company is now evaluating the new cost structure put forward by MCC, and will assess alternative options.


"[CITIC] believes that, among the possible options, continuing to employ MCC to complete its work as fast as possible at a cost within reason is in the best interest of Citic Pacific and its shareholders."


MCC has warned that integrated commissioning of the project has been delayed to the end of 2011, resulting in first production from the project being pushed back to the first half of 2012.