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CITIC LIMITED
Notes to the Consolidated Financial Statements
For the six months ended 30 June 2016
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3 Critical accounting estimates and judgment
(continued)
(b) Mineralogy Pty Ltd (“Mineralogy”) Disputes
Each of Sino Iron and Korean Steel Pty Ltd (“Korean Steel”), subsidiary companies of the Company, is
a party to a Mining Right and Site Lease Agreement (“MRSLA”) with Mineralogy. Among other things,
those agreements, together with other project agreements, provide Sino Iron and Korean Steel the
right to construct the Sino Iron Project and take two billion tonnes of magnetite ore.
A number of disputes have arisen in relation to the MRSLAs and associated agreements, a number of
which are described below. The Group intends to contest all claims vigorously.
Option Agreement Dispute
The Company is a party to an Option Agreement with Mineralogy and Mr. Clive Palmer, pursuant
to which it has options to acquire up to four further companies, each holding the right to mine one
billion tonnes of magnetite ore in the vicinity of the Sino Iron Project. The Company exercised the
first option under the Option Agreement on 13 April 2012. Following the exercise of the first option,
Mineralogy alleged that the Option Agreement had been repudiated by the Company, purported to
accept that repudiation and stated that the Option Agreement was at an end.
The Company (and its affected subsidiaries, Sino Iron and Korean Steel) commenced legal
proceedings in relation to the dispute in the Supreme Court of Western Australia. On 30 September
2015, the Court made the declarations sought by the Company, including that the Company had not
repudiated the Option Agreement as initially asserted by Mineralogy and Mr. Palmer.
Notwithstanding the making of these declarations, Mineralogy has not taken the action necessary to
permit completion of the transaction resulting from the Company’s exercise of the first option under
the Option Agreement. On 31 March 2016, the Company, Sino Iron and Korean Steel commenced a
proceeding in the Supreme Court of Western Australia to seek orders compelling Mineralogy to take
the steps necessary to complete the transfer of a further company having the right to mine one billion
tonnes of magnetite ore. No trial date has been set for this proceeding.
Royalties Disputes
The MRSLAs provide that Sino Iron and Korean Steel must pay a royalty to Mineralogy, a component
of which (“Royalty Component B”) is payable on products produced and calculated by reference to
prevailing annual published FOB prices for certain iron ore products (“annual benchmark prices’”).
Annual benchmark prices no longer exist, and Sino Iron and Korean Steel’s position is that this
means that Royalty Component B is no longer able to be calculated using the formula in the MRSLAs.
Mineralogy denied that this was the case, and pursued proceedings in the Supreme Court of Western
Australia seeking declarations (among other things) that Royalty Component B can be calculated.