Citic Pacific's four-year investment bill doubled in Australia magnetite project

"The investment funds have to be estimated more than last year's budget."　　Recently, a person close to the Citic Group told reporters that at the beginning of the year Citic Group on its Australian iron ore investment project again made a budget, the investment budget may be more than 6 billion U.S. dollars, than the original budget in 2006 than one times.　　Every step of the time to spend money on overseas projects, for Chinese companies is always a scratching head of the account, and this is precisely to the Citic Pacific (00267.HK).　　The capital budget doubled 25 kilometres from the Horn of Preston. Tenement's West Australia Magnet project is the largest overseas iron ore production base in China, which is one of the largest iron mining projects in the world, based on the current annual mining volume.　　2006, Citic Pacific to Mineralogy acquisition at Tenement 123, 124, 125, 2 billion tons of magnetite resources rights, and has the right to further purchase of 4 billion tons of mining. At that time, Citic Pacific's estimate of the Australian magnetite project was 3.319 billion dollars. In a 2009-year estimate, investment costs have increased to 5.2 billion dollars.　　The increase in capital investment was the largest, with a growth of nearly 50% per cent, compared with an annual production scale of only 24 million tonnes to 27.6 million tonnes. In this respect, the close to Citic Group informed people told reporters that overseas projects is a money-spreading job. Subject to the local environment, investors need not only invest in mining, mineral processing and other production, all the infrastructure around production must be built on their own, and almost from scratch, and all the project related affairs need money. "Previous estimates were based on local investment estimates made by Mineralogy in Australia and another domestic steel company, but prices for iron ore products have hit new highs between 2006 and 2008, and project projects have been built up, This makes the whole project construction of the various links have been rising costs and inflationary pressures. Despite the impact of the 2008 financial crisis, raw material prices have been hit, but prices since the beginning of 2009 rally still cost-building pressure.　　"The person said.　　It is understood that the previous estimate of the project is a preliminary understanding of the local original orebody, no further tests were made, and after the construction of the project, the investor's estimate of the ore body was adjusted, which also led to discrepancies in the supply of raw materials, the amount of water required and the amount of electricity supplied before the budget.　　In addition, Australia's environmental requirements are very high, the current domestic equipment can not meet these requirements, so China has to use a large number of overseas imports of equipment, the local staff salaries, design and construction requirements, etc., must be paid according to local Australian standards.　　Experts who have been involved in overseas projects of a Chinese-funded enterprise told reporters that in Europe and the United States, including consultancy fees, team expenditure and related expenses are not decimal. It is reported that the Citic Pacific Australia project earlier budget included the above details, "the projectThe first production day was also postponed than earlier estimates, which also increased the associated costs.　　"The increased costs could be around 250 million dollars," said the person familiar with the matter.　　The increased capital investment also includes the upfront construction costs of future expansion needs of nearly 400 million dollars.　　Including port facilities, desalination plants, highways, construction camps and other facilities, a total of several investment statistics down a total of a billion of of dollars. Seeking to exchange equity for funds "due to the substantial increase in costs, in 2009 after the deal with Citic Pacific mega-dollar contract huge loss incident, Citic Group to the State to provide financial support requirements."　　"The state-owned companies have a government presence behind their overseas projects, especially in important areas such as energy resources, and the State has policies to support them," the person said. CITIC Group has submitted to the Government management departments for instructions, the hope that the state finance to the Australian iron Ore project company loans to pay discount.　　At the same time, it is proposed to convert the National Development Bank to Citic Pacific, a part of the Australian Magnet Project to the Australian iron Ore project company 30%-35% Equity, the way is based on the cost price of Citic Pacific, the method of pricing and transfer to the China Metallurgical Group 20% Equity shares.　　According to people familiar with the situation, Citic Group was designed by Citic Pacific Australian iron ore ownership structure, Citic Pacific accounted for 45%-50%, the National Development Bank or its affiliated investment companies accounted for 30%-35%, China Metallurgical group accounted for 20%, the loan part of the project company assets Mortgage.　　With regard to the reasons for the swap, according to the people familiar with the situation, the consideration could also give CITIC Pacific a lower share of the project company than the consolidated financial statements, thereby reducing its interest-bearing liability ratio. According to an earlier agreement between Citic Pacific and the National Development Bank, 25% of the investment is equity capital and 75% is a limited recourse project company loan. After the construction of the project, with the increase in investment costs, the nearly 2.5 billion trillion dollars previously promised by the National Development Bank have been unable to meet the earlier financing ratio arrangement.　　Citic Group hopes that the National Development Bank will be able to add new loans on the basis of a restructuring of the project company. In fact, the national Development Bank has always been positive about the project and was involved at the beginning of the project, and all the construction loans for the Citic Pacific Australian iron ore equity investment project were provided by the National Development Bank.　　In this connection, the National Development Bank at that time expressed its consent to invest in the project, and the way to share the approval, but also hope that the relevant departments to approve, do not deduct bank capital.　　People familiar with the matter said that the demand for capital loans should have been met, but the loan swap is not yet known more. Seeking China's pricing power "CITIC Pacific Australian iron ore project product quality is very good, such as alumina and silica, such as the content of impurities is very low, pellet and concentrate powder iron grade is more than 65%, is the steel industry raw materials in the fine. He explained that for the domestic currently widely used sintered hematite, the project to provide magnetite pellets will be the future of China's iron and steel industry, the main raw materials. ThisThe raw materials not only cost more than the domestic mining enterprise concentrate Powder unit production cost of 70 U.S. dollars/ton low to nearly one-third, but also can significantly reduce energy consumption and carbon dioxide emissions.　　The staff of the China Iron and Steel Industry Association briefed the reporters. Given Citic Pacific's 12 115,000-ton cargo fleet, the staff said: "The production of the project after the delivery of products can be fully guaranteed, at the same time, the project construction infrastructure has expanded the capacity of space, in the future can be invested in metallurgical iron ore projects to provide support and form synergies." A professional close to the project told reporters that the estimated tenement of resources could exceed 4 billion to 5 billion tonnes.　　With the subsequent production lines being phased into commercial operations, 27.6 million tonnes of concentrate powder are planned for export by the end of 2011. The domestic demand for the mine is mainly Citic Pacific's three special steel enterprises in the year about 8 million tons, the long term can exceed 10 million tons, another big steel giant Wisco's demand may be more than 6 million tons, the joint participation in the project's demand in the metallurgical industry is about 5 million tons, while the remaining share will be reserved for other shareholders in the project. The investor's estimate of the project's yield is based on the standard of more than 70 dollars a ton, with yields reaching around 16%.　　It is understood that Citic Pacific Australian Magnet Project estimates within the project rate of return of 13.4%, the project back to the current 10 years, the shareholder return of 21.2%, back to the current period of 8.6 years. According to the reporter understood that the Chinese enterprise has the complete independent pricing right to this project, the middle metallurgy and Shougang in the mine nearby invests the other iron ore to calculate, in the Western Australia, Chinese enterprises can form the production capacity of more than 60 million tons of iron ore, accounting for the 2008 China Import Australia Ore 33%, It has important strategic significance to break the international iron ore price monopoly system and guarantee the long-term stability of Chinese iron ore import.