* Sino Iron's first production line still not at capacity
* Sino Iron says Palmer attacks don't represent Australians (Adds CITIC chairman comments on Palmer)
HONG KONG/MELBOURNE Aug 29 (Reuters) - China's CITIC Ltd reported a HK$1 billion ($129 million) half-year loss on its Australian iron ore operation, which shipped its first ore in December but is still struggling to get the first of six production lines working well.
The $9.6 billion Sino Iron project, China's biggest overseas mining investment, has sold 1.4 million tonnes of iron ore so far, after starting exports more than three years behind schedule and nearly four times over budget.
It is a long way from reaching its planned capacity of 24 million tonnes a year.
"Operationally, production line one has been producing quality iron ore concentrate. However, it has yet to reach the desired capacity," CITIC Chairman Chang Zhenming said in a letter to shareholders released with the group's results.
Sino Iron's second unit is in trial production and the remaining four lines are under construction, he said. The first-half loss on the project was in line with the loss booked a year earlier.
CITIC, previously called CITIC Pacific before absorbing its state-owned parent CITIC Group's assets this year, has been fighting lawsuits launched by Australian billionaire politician Clive Palmer over royalties owed on the Sino Iron project and control of its export port for more than a year.
The battle with Palmer, whose company Mineralogy sold the rights to the project to CITIC in 2006, has escalated into public brawling this year, with Palmer accusing China last week on television of trying to steal Australia's resources and calling the Chinese "bastards".
He wrote an apology to China's ambassador to Australia this week, saying he only meant to attack CITIC Pacific.
Chang criticised Palmer's outburst and said the company would ordinarily try to settle commercial disputes through negotiation, but in this case would focus on protecting shareholders' interests through legal channels.
"We strongly reprimand Palmer's expression. However, we believe that Palmer's expression does not represent the opinion of Australians," Chang told reporters at a results briefing in Hong Kong.
Palmer has lost two cases in the past month concerning control over the export port, Cape Preston.
The fight is now centred on how to resolve the calculation of royalties owed. Palmer wants it to be decided by an external expert, while CITIC wants a court to rule on the issue.
(1 US dollar = 7.7502 Hong Kong dollar) (Reporting by Donny Kwok in HONG KONG and Sonali Paul in MELBOURNE; Editing on Alan Raybould and Tom Hogue)