After 27 years Clive Palmer's dream of seeing iron ore production from his tenements in the Pilbara is about to be realised, as the massive CITIC Pacific Sino Iron project begins to fire up.
But, massively over-budget and long overdue, it appears the entire mess is set to head to the local courts, as CITIC takes on Clive Palmer in a heavyweight battle over project royalties payable.
The project has a chequered history. The mining magnate's dream of supplying China with iron ore from Cape Preston dates back to 1985, when Mr Palmer picked up the Pilbara ground. Plans were floated in the late 1980s for an integrated steel producer mining the same deposits CITIC is getting access to, and by 1993 Mr Palmer's Mineralogy was conducting feasibility studies on a $1.65 billion hot briquetted iron plant in the region.
But a few years later the proposal had drifted off the radar. Mr Palmer revived the idea again in 1999 launching, with much fanfare, the $5 billion Austeel project - a 14-member consortium to build an iron ore mine and steel plant that could export 3.8 million tonnes of steel products a year. That plan lasted two years, before Austeel scrapped the Pilbara in favour of a similar venture in Newcastle before collapsing completely in 2004.
In late 2004, the Pilbara concept came round again with China's Wuhan Iron & Steel Co (WISCO) for the supply of magnetite concentrate from the deposits. But it wasn't until 2006, with CITIC Pacific, that Mr Palmer found a partner willing and able to fund the extraordinary capital costs of processing his low-grade magnetite iron ore into a saleable product.
In 2006, the Chinese company paid $US215 million (then $290 million) for the right to mine a billion tonnes of iron ore from Mr Palmer's deposits. Eighteen months later CITIC agreed to pay another $US200 million (then $217 million) for access to another billion tonnes of iron ore. In April, CITIC said it would take up another $200 million option for rights over a further billion tonnes.
The final amount would be far less, with exploration expenses to be deducted.
The Chinese company would also pay royalties to Mr Palmer, under a two-stage royalty scheme. The first stage was a US30¢/t on ore "taken" from the project, and the second a complex production royalty calculated on magnetite shipped from the project. It is the first stage that has come unstuck, over an argument about the meaning of the word "taken". For Mr Palmer it means "mined", and he is understood to be claiming royalties on all ore movements since 2008. CITIC says it is all material fed into the crusher, starting with commercial production.
Then, of course, there is the penalty payment due from CITIC in March next year. If it fails to produce at least 6mt of iron ore by then - an impossible task - CITIC is to pay royalty on that amount, a figure Mr Palmer claims would be about $200 million.