Citic Writes Down up to $1 Billion on Australian Iron Ore Project
(Beijing) - One of China’s largest overseas investments in the mining sector is costing Citic Ltd. more major losses due to weakness in global commodities markets, although smaller than previous years as demand firms.
The Hong Kong-listed unit of state-owned conglomerate Citic Group said it would write down $800 million to $1 billion on the value of its Sino Iron project in Australia for the financial year ended March, according to a statement on Wednesday. That was down from impairments of over $1.5 billion in 2015 and $1.4 billion in 2014.
The impairment will reduce Citic Ltd.’s 2016 profits to be reported in March, the company said, without providing more specifics. It added the estimated impairment factored in the recent rise in iron ore prices, but cautioned that independent forecasts of long-term prices have been lowered.
The Sino Iron project, at Cape Preston, Western Australia, was launched in 2006 when soaring Chinese steel production was pushing Australian iron ore prices to new heights.
But the project quickly became problematic as it ran years behind schedule and its investment budget soared by more than five times the original $3 billion amount. At the same time, slumping prices for iron ore also undermined the project’s profitability.
The first ship loaded with ore powder from the project arrived in China in December 2013, more than four years behind the original schedule.
Citic said the last of the project’s six production lines began producing last May, and the mine exported 11 million wet metric tons of iron ore concentrate in 2016. The company vowed to ramp up output, improve efficiency and reduce operation costs at the mine.
Iron ore prices began to firm last year amid predictions that demand from China would increase. The spot price of iron ore delivered to China’s Qingdao port rose to $92.23 per ton as of Feb. 14, the highest since August 2014.
The world’s largest iron ore producers including Rio Tinto and BHP Billiton have increased supplies since the start of 2017, and the Chinese market has absorbed almost all the new supply.
Contact reporter Han Wei (firstname.lastname@example.org)
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