PERTH (miningweekly.com) – China’s Citic Pacific said on Wednesday that the development of its Sino iron-ore project, in Western Australia, would cost $835-million more than originally anticipated.

Its subsidiary, Sino Iron, had entered into a supplemental contract with mining contractor MCC Mining to increase the existing contract figure from $1,75-billion to $2,58-billion.

Citic Pacific said in a statement that the cost increase for the general construction contract was primarily owing to changes in the cost structure of the industry.

Since the original contract was signed in August 2007, the market for iron-ore has changed significantly as a result of the growth in demand. The price of iron-ore has also risen significantly, and costs related to mining projects, including labour, equipment and construction materials, have also increased substantially.

Citic Pacific reported that the contract sum was payable in accordance with the progress of the works, and settled on a monthly basis. To cater for the funding requirements for the project construction, MCC may request advanced payments, which would be made at the discretion of Sino Iron.

The supplement contract was conditional upon Sino Iron obtaining the relevant consent from its financiers, and obtaining all relevant approvals from relevant parties. If the conditions were not met before the end of June this year, the parties would further negotiate the supplemental contract.

Citic Pacific said that although the original contract amount was fixed, the increased contract figure was still more cost effective than replacing MCC Mining as the contractor, as this would result in delays to the project.

“In addition, the increase in the contract sum will become relatively insignificant if it is spread across the total cost of the Sino iron-ore project, which has a life of 25 years.”

The company added that once the mine is in full production, it was expected to become one of the main profit contributors to Citic Pacific.

Sino Iron holds the mining rights for two-billion tons of magnetite iron-ore reserves, to produce a maximum of 27,6-million tons of ore a year.

The Sino iron-ore project is the largest planned magnetite project in Australia, and had the potential to increase production to over 70-million tons a year.