Citic tells Clive Palmer it’s willing to shut Sino Iron project

Citic has warned Clive ­Palmer not to underestimate its preparedness to shut the Sino Iron project in WA.

Citic chairman Chang Zhenming in Hong Kong. Picture: Isaac Lawrence

The head of Chinese corporate giant Citic has warned Clive ­Palmer not to underestimate its preparedness to shut down the $15 billion Sino Iron project in Western Australia.

Sino Iron represents the former MP’s best hope of rebuilding his fortune, with the iron ore project already generating millions of dollars a year in royalties for him.

But a series of ongoing legal battles between Citic and Mr Palmer represents a “real” risk to the future of the project, Citic chairman Chang Zhenming said yesterday.

“An adverse development in any one, or a combination of, the [legal fights with Mr Palmer] could jeopardise Sino Iron’s viability and, in the worst case, lead to suspension of our operations,” Mr Chang said. “We are doing everything within our power to avoid this undesirable outcome. However, the potential risk is real.”

Mr Palmer has previously shrugged off suggestions that Citic could shut Sino Iron if it loses its legal battles or fails to improve the performance of the loss-making project, arguing that the iron ore concentrate from Sino Iron is “too important” for China’s steel mills for the project to shut.

But Mr Chang said Citic — which is majority-owned by the Chinese government and listed on the Hong Kong Stock Exchange — was accountable to a diverse shareholder base and all its investments had to be viable.

“There’s a misperception that companies with a state background or ownership are not commercially driven and our resources are assumed to be ­unlimited. This is not true,” Mr Chang said. “Chinese companies all have individual characteristics. I can assure you that Citic is very much its own corporate commercial entity, with its own approach and very clear commercial objectives and constraints.”

The comments came in the latest annual accounts lodged by Citic with the Hong Kong ­exchange.

The company — which has interests in industries including ­financial services, manufacturing and real estate, and which also owns a stake in McDonald’s restaurants across China and Hong Kong — yesterday said it had generated a profit for the first six months of the year of $HK32.3bn ($5.2bn).

But its resources and energy division has continued to be a drag on the business, with Sino Iron being blamed for the $HK284 million loss recorded by the arm in the first half.

Citic and Mr Palmer are set to learn in the coming months the ­result of June’s lengthy Supreme Court dispute over the so-called Royalty B at Sino Iron. Mr Palmer claims he is eligible for an ­additional royalty from the project of about $US100m a year; Citic believes he should get a 20 per cent share of future profits.

The two are also waging a separate battle over the right of Citic to expand Sino Iron’s waste and tailings storage areas, with Mr Palmer and his private company Mineralogy withholding consent for the expansion. “Mineralogy’s refusal to co-operate means that we will run out of space for waste and tailings storage in the near ­future. This will severely constrain operations and impact Sino Iron’s sustainability,” Mr Chang said.