A year after settling a long-running legal action with one of its major customers, Mount Gibson Iron is back in dispute with Rizhao Steel Holding Group.
In its annual shareholder report, released on Friday, Mount Gibson said the Chinese steelmaker had notified it of a dispute over the terms of a $US82 million off-take agreement for low-grade waste ore from its Koolan Island operations.
Rizhao had issued a conditional notice terminating the agreement, Mount Gibson said, and had indicated it would seek unspecified damages over the alleged contract breach. The dispute is the latest in a series of running battles between the Australian iron ore miner and Rizhao, dating to the depths of the global financial crisis in 2008 when a number of Mount Gibson's customers, including Rizhao, turned back iron ore shipments, forcing the company into a $162 million capital raising to survive. Mount Gibson took legal action against its former customers as a result, and in 2010 an independent arbitrator awarded $US114 million damages against Rizhao.
Rizhao had no locally held assets, however, and the decision proved difficult to enforce in the Chinese courts. In October 2011 Mount Gibson said it had agreed an alternative settlement with Rizhao. The steelmaker agreed to take 25 per cent of the output of the Extension Hill mine in the Mid West, and said it would also buy $US82 million of waste ore from Mount Gibson's Koolan Island mine, at a cost of about $US48.20 per tonne. To seal the deal Mount Gibson was paid a $US15 million non-refundable deposit
It is that second agreement that has fallen apart, according to Mount Gibson's financial statements. It is understood an indicative shipping timetable, circulated shortly after the deal was agreed, forecast that first ore would be shipped in April to May, but Mount Gibson had failed to ship any ore by the end of June. Early in the new financial year, amid another plunge in iron ore prices, Rizhao informed Mount Gibson it believed a material breach of the agreement had occurred, and moved to take the dispute to arbitration.
Mount Gibson said on Friday it rejected any allegation it had breached its obligations, and was still preparing to ship the low grade waste ore to Rizhao.
"Regardless, Mount Gibson does not consider the potential termination of the Koolan Island agreement as likely to have any material adverse financial impact given availability of other buyers," the company said.
A spokesman for Mount Gibson said yesterday the off-take agreement with Rizhao over Extension Hill ore was unaffected by the latest dispute, and shipments were continuing as planned.
Mount Gibson shares last traded at 69.5¢.