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By Sonali Paul
MELBOURNE, Feb 6 (Reuters) - China's CITIC Pacific Ltd
The Sino Iron project, China's biggest offshore mining investment, was to be a key prong in Beijing's strategy to ease its dependence on the world's dominant iron ore producers, Vale
But instead it has been a disaster for CITIC Pacific and its contractor, Metallurgical Corp of China (MCC)
To add to its woes, tycoon Clive Palmer, who sold the rights to the ore to CITIC Pacific, has sued it for what he says are hundreds of millions of dollars owed in royalties and tried to block CITIC's port access.
To date, while Palmer has made statements attacking the Chinese developers, CITIC Pacific has focused on defending its case in the courts rather than hitting back.
However on Thursday, CITIC Pacific President Zhang Jijing was frank about the poor relationship with Palmer, who recently won a seat in Australia's parliament after creating his own political party and is ploughing ahead with plans to build a replica of the Titanic.
"Any claim that we haven't paid our fair share in accordance with agreements is just plain rubbish," he told an audience of 670 mining industry executives, bankers and lawyers in Melbourne.
Zhang was even more open when asked how the relationship with Palmer had soured so badly.
"That's a question I always ask myself," he said, noting he was not new to doing deals in Australia. "I have never met such a person like this gentleman."
He said commercial disputes were not unusual and CITIC Pacific always preferred them to be sorted out away from the public spotlight, but that was an "unrealistic expectation" with "some larger-than-life characters involved".
The current dispute between Palmer and CITIC Pacific is over a royalty stream, called Royalty B, potentially involving around A$200 million owed. Zhang said the industry benchmarks under which Royalty B was to be calculated no longer exist, so the method of calculation needs to be resolved.
Palmer was unrepentant in response to Zhang's comments.
"The proposition is CITIC wants to come here and suggest the main consideration can't be calculated, yet they still want to take our resources back to China without paying for them," Palmer's company Mineralogy said in an emailed statement.
"In our opinion this is tantamount to stealing, and most Australians would be in agreement."
CITIC Pacific, controlled by state-owned CITIC Group, shipped its first ore to one of its steel mills in December, more than three years behind schedule at nearly quadruple the original cost, with only one out of six 4-million-tonnes-a-year production lines running so far.
By comparison, in the three years that its project has been delayed, the top three Australian iron ore producers have expanded their annual output by more than 190 million tonnes.
Zhang said the project's progress and the legal fight were being closely watched by other Chinese firms eyeing investments in Australia, including other magnetite iron ore projects in Western Australia.
CITIC Pacific's shares sank to a four-year low of HK$7.90 last June then surged 55 percent to HK$12.28 by December when it loaded its first ore shipment. The stock has since slipped to HK$9.47 as iron ore prices have dropped to seven-month lows.
(Editing by Richard Pullin)
((Sonali.Paul@thomsonreuters.com)(+61 3 9286 1419)(Reuters Messaging: sonali.paul.thomsonreuters.com@reuters.net))
Keywords: AUSTRALIA CITICPACIFIC/IRONORE