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HALF-YEAR REPORT 2016
Notes to the Consolidated Financial Statements
For the six months ended 30 June 2016
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3 Critical accounting estimates and judgment
In addition to those described below, the accounting estimates and judgements required to be made in
preparation of the Accounts are consistent with those set out in the Company’s annual financial statements
for the year ended 31 December 2015.
(a) Metallurgical Corporation of China (“MCC”) Claim
MCC were appointed as the EPC (engineering, procurement and construction) contractor for the
processing area and related facilities at the Group’s Sino Iron project in Western Australia (“Sino Iron
Project”). The fixed price contract amount was US$3.4 billion.
On 30 January 2013, MCC announced that it had incurred costs over the value of the contract and had
provided additional funding of US$858 million to MCC Mining (Western Australia) Pty Ltd (“MCC WA”),
its wholly owned subsidiary company responsible for delivering MCC’s obligations under the contract.
As at the date of approval of the Accounts, MCC has not claimed any additional costs from Sino Iron
Pty Ltd (“Sino Iron”) or its subsidiary companies, other than minor contract variations in the normal
course of operations, and the Group believes it has satisfied all of its obligations under the contract.
Under the contract, the Group has a right to claim liquidated damages from MCC WA for certain
delays in the completion of their project scope at a daily amount of 0.15% of the value of the main
contract (approximately US$5 million per day, with a cap of approximately US$530 million in total). As
at balance sheet date the cumulative days delay that has been incurred has resulted in the contractual
cap to the liquidated damages being reached.
As set out in the Company’s announcement dated 24 December 2013, Sino Iron and MCC WA entered
into a supplemental contract pursuant to which Sino Iron will take over the management of the
construction and commissioning of the remaining four production lines of the Sino Iron Project.
An independent audit will opine on various matters including the contract price for the hand over
pursuant to the supplemental contract and related fees and expenses, the value of the supporting
services provided by Sino Iron to MCC WA in carrying out its responsibilities under the contract,
the extent of the works completed by MCC WA in respect of the first two production lines, and the
liability of MCC WA in respect of the extensive delays on completion of the works under the contract.
By reference to such findings of the independent audit, Sino Iron and MCC WA expect to enter
into further negotiations to determine the amount of liabilities to be borne between the parties.
Outcomes are not yet known as at 30 June 2016.