LI, Tao @ Hong Kong

Citic Pacific Ltd’s strong first-half operating results was overshadowed by its admission that the outlook for its mega mining project in Australia is still clouded by uncertainty.

On Friday it announced that first-half net profit rose 24 percent to HK$6 billion as the group sold more properties and special steel products during the period.

The mining-to-property conglomerate posted a HK$6.01 billion net profit for the six months ended June 30, up 23.6 percent from HK$4.87 billion a year earlier. Citic Pacific also distributed an interim dividend of HK$0.15 per share, unchanged from last year, according to a statement to the city’s stock exchange on Friday.

However, its troubled Australian Sino Iron project – the world’s largest magnetite iron-ore project under development – is still “unknown” in terms of future returns as there are a number of unresolved issues, including taxation, launch date and future sales. These will all have an impact, said Zhang Jijing, managing director of the group.

The Australian government released draft legislation for the proposed Minerals Resources Rent Tax in June, according to which magnetite iron ore will be subject to taxation yet to be determined, the group said.

The government has also announced a plan to tax companies with high carbon emissions, and Sino Iron is once again a case in point, Zhang told a media briefing in Hong Kong Friday. He said the group is now working closely with other magnetite iron ore producers to lobby the Australian government in a bid to make their voice heard.

Zhang also noted that Citic Pacific has yet to conclude negotiations with the key contractor of the project, China Metallurgical Group Corp (MCC), which is demanding an additional $900 million for the completion of the project.

“No one can guarantee there won’t be an increase in construction costs … but we are very disappointed with the request,” said Zhang, adding that the group has to push back the date it expects production to begin in the state of Western Australia’s Pilbara region to the first half of 2012 from the end of this year. “But we do not have better choices beyond MCC.”

To support these developments, the company raised $1.25 billion from the capital market in April, and raised another 1 billion yuan through a private placement earlier this month. It also agreed to sell more than 50 percent of its interest in Citic Guoan to its parent Citic Group, which will bring in more than HK$4 billion of cash if the transaction receives approval from shareholders and regulators.

In July, rating agency Standard & Poor’s slashed the company’s credit rating to BB+, which is one notch below what the agency calls “investment grade” and said it might downgrade the rating further.

S&P said Citic Pacific had a lot of debt – HK$83 billion at the end of 2010 that was partly due to massive losses in Australian dollar positions in 2008 that went sour – to repay, and its earnings have also come under pressure from the cost blowouts at the Australian project.

China Daily
(HK Edition 08/20/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-08/20/content_13154767.htm