CITIC Pacific mines dormant

Domestic firms should have long-term strategies and stop seeking quick profits when investing overseas, analysts said Monday following news that CITIC Pacific Ltd (CPL) has not started the operation of its two mines overseas after investing enormously in them.

"Not only CPL but also other companies like Sinosteel Corporation and China Metallurgical Group Corporation (MCC) have made hasty investments over the past years," Xu Xiangchun, information director with steel information provider mysteel.net, told the Global Times Monday.

"Domestic firms should do detailed feasibility studies and understand long-term prospects before rushing into the overseas markets and investing heavily," Xu said.

On September 25, Hong Kong-based CPL applied to Hong Kong Exchanges and Clearing Ltd for a supplemental offering of $2.5 billion worth of medium-term notes, which would partially cover capital needs for its iron ore mines in Australia, Investor Journal reported Sunday, citing an unnamed insider.

A PR staff with CPL who preferred not to be named told the Global Times Monday that raising capital on the stock market is a "normal financing activity and part of day-to-day operation" of the company.

She neither denied nor confirmed on the relationship between capital raised and the Australia-based mines.

In 2006, CPL bought two mines at a price tag of $415 million from Australian Clive Palmer but after six years, the mines are yet to start production.

"Generally it takes two to three years instead of six for a mine project to be operational," Wang Guoqing, a senior analyst at Beijing Lange Steel Information Research Center, told the Global Times.

CPL this year raised its estimate of investment in the two mines from a 2009 estimate of $4.2 billion to between some $7.8 billion and 10 billion, according to an earlier report by China Business News.

On August 16, the company announced that its first operation line will have a trial start in November instead of August as planned.

Though CPL told the Global Times Monday the major reason behind the recent delay was the screening technology of its contractor MCC, industry analysts talked about deep-rooted factors.

"CPL has underestimated the exploration costs of the mines and complexities involved in the exploration including environmental requirements by the local government," Xu said.

It also misjudged the market and made massive recruitments when the global financial crisis broke out in 2008, analysts said.

And pressure is expected to pile on in the foreseeable future. "CPL has missed a golden period of production when iron ore price was good," Xu said, noting that the unit price of iron ore will remain around $100 next year, dropping from some $130 at the beginning of the year.