18 February 2019

CITIC Pacific sees glimmer of light after years of darkness

CITIC Pacific Ltd. (00267.HK), the state-linked property-to-steelmaking conglomerate, may be heading for better times after going through a dark phase in recent years, going by comments made by one of its key engineering contractors at an Australian mining project.

The contractor, Metallurgical Corporation of China (01618.HK), said in its latest quarterly report that the Sino Iron Project of CITIC Pacific in Australia has successfully begun trial run of the second production line, enabling it to operate simultaneously along with the first production line. 

As things stand, the day for bulk mining at the multibillion dollar project is not far off, which could provide real comfort for CITIC Pacific. Hit by unexpected technical problems, the Hong Kong blue chip had spent US$8 billion on the mine but is yet to ship any ore even after years of delay and overruns.

While there certainly seems to be light at the end of the tunnel, there is one more factor that is adding to the optimism about the company’s prospects. Demand as well as prices of iron ore have been rising in the market recently, helped by China’s stepped up fixed-asset investments.

But before the Sino Iron Project can emerge as a growth driver, CITIC Pacific may not be able to avoid further asset disposals to prop up its earnings. It just sold a prime office building under construction in downtown Shanghai for 2.5 billion yuan (US$411 million). The deal is expected to bring in a profit about 330 million yuan.

CITIC Pacific shares, meanwhile, already seem to be reflecting the improving outlook. The counter has rallied by 27 percent in the last three months, outperforming the benchmark Hang Seng Index.

– Contact the writer at [email protected]


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