CITIC's Australia Sino Iron mine cost surges to $8bn-report

PERTH, July 21 Sat Jul 21, 2012 1:20am EDT

PERTH, July 21 (Reuters) - China's Citic Pacific Ltd said the cost to build its Sino Iron project in Western Australia's remote Pilbara region has reached $8 billion, The Australian newspaper reported on Saturday, representing a jump of at least $1 billion.

But CITIC Pacific Mining executive chairman Hua Dongyi told the paper that Australia's biggest magnetite mine will be able to start production in line with the latest scheduled estimate.

"In September, everything will be ready for the whole project to be running," Hua said.

The project, China's largest mining investment, has already suffered a series of cost overruns and delays. With production at least two years behind schedule, the mine has become a cautionary tale of the difficulties that Chinese firms face as they develop resources abroad.

The project - a joint venture between CITIC Pacific Ltd and Metallurgical Corp of China Ltd - was signed in January 2007, with an estimated value of $1.1 billion.

The project cost then rose to $1.75 billion in 2007, before jumping to $2.59 billion in 2010.

A company official told The Australian on Friday the latest estimate at the end of 2011 was $7 billion due to rising equipment and labour costs. In July last year, newspapers reported a cost estimate of $6.1 billion

The project has also faced other hurdles including a stronger Australian dollar and the imposition of a mining tax and carbon tax by the Australian government. In May, Australia's Immigration Department confirmed it was investigating union claims that CITIC Pacific underpaid Chinese workers at the mine.

CITIC had originally targeted the middle of 2010 for first production from the Sino Iron project, which will produce 24 million tonnes per year of the steel-making ingredient.

Another Chinese firm, Sinosteel, has also suspended work on its $2 billion Weld Range iron ore mining project in Australia's midwest region due to setbacks in developing port and rail infrastructure.

(Writing by Morag MacKinnon; Editing by Ed Lane)