Citic’s Sino Iron ore contract was designed to evolve, say Clive Palmer’s lawyers

The contract at the centre of the dispute between Clive Palmer and Citic was designed to evolve with market, court hears.

Citic Pacific Mining's, Sino Iron Project mine site at Karatha. Picture: Bloomberg

The multibillion-dollar contract at the centre of the dispute between former MP Clive Palmer and his estranged Chinese business partners Citic was deliberately designed to evolve with market, Mr Palmer’s lawyers have argued.

Citic is appealing last year’s decision by the Western Australian Supreme Court to award Mr Palmer and his private company Mineralogy around $US275 million in royalties from Citic’s $16 billion Sino Iron mine in WA. The decision also entitled Mr Palmer to hundreds of millions of dollars in future royalties.

Citic has long argued that one royalty clause in its agreement with Mr Palmer could no longer be calculated, as it was based around the annual negotiated benchmark iron ore pricing system that collapsed back in 2010. It has instead been arguing for the Court of Appeal to determine an alternative “fair and reasonable” alternative instead.

But David Jackson QC, representing Mr Palmer, argued that the original agreement signed by the parties was sufficiently flexible to shift along with changes in market pricing mechanisms.

He noted that while the benchmark pricing system — which was set through yearly negotiations between the major iron ore producers and the big steel companies of Japan — was in place at the time of the original 2006 agreement, it was already clear then that China was set to usurp Japan as the dominant source of seaborne iron ore demand.

“The world was moving on. That was known at the time,” Mr Jackson said.

Both Mineralogy and Citic would have known about the changing dynamics in the iron ore market, he said.

“It was not the work of innocents on either side,” he said.

“They were financial parties of some expertise in these areas.”

WA Supreme Court Justice Kenneth Martin last year ruled that the disputed royalty could be calculated using a formula linked to one of the iron ore price indexes that has emerged since the end of the benchmark system.

Mr Jackson said such an approach was both fair and reasonable.

He also noted that the original 2006 agreement between Citic and Mineralogy did not make explicit reference to “benchmark” prices, which he said reflected the understanding that pricing mechanisms were likely to change over the Sino Iron project’s decades-long operating life.

The royalties ruling has placed further strain on the already challenged economics of the Sino Iron mine, which is also being affected by Mr Palmer’s refusal to sign off on a proposed expansion of its tailings dam.

Citic has previously warned that the mine could be in jeopardy if the dam expansion does not get approved, and WA premier Mark McGowan last week publicly called for Mr Palmer to sign off on the plan.