AGC Australia, Karara Mining in Legal Dispute over Contracts

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Researched by Industrial Info Resources Australia (Perth, Australia)--A legal battle has emerged between iron ore producer Karara Mining Limited (Western Australia) and construction company AGC Australia Pty Limited over the contractual obligations of construction performed during 2011-12 that totalled about $50.93 million (AUD$55 million).

The now-operational iron ore project is located 200 kilometres east of Geraldton, Western Australia. Karara Mining Limited is a 50:50 joint venture between Gindalbie Metals Limited (ASX:GBG) (Perth) and Ansteel, one of China's largest steel producers and iron ore miners.

AGC is a construction, fabrication and integrated services subsidiary of AusGroup Limited. Its diversified interests include oil and gas, mining and minerals industries.

Over the next few days, the companies will deliberate over the details of the contracts that were awarded to AGC in 2011 that were primarily based on progress and bonus payments that are owed to the construction company.

Despite the recent negative activity, Karara Mining has progressed well throughout 2013. With an estimated lifespan of 35 years and expected to produce in excess of 30 million tons per annum, the mine is extracting small-scale deposits of a hematite direct shipping operation (DSO) and a larger magnetite concentrate operation.

The Karara project will be broken into three stages. Stage one is only months away from achieving the initial capacity of 8 million tons per annum of iron ore. Stage two will consist of ramping operations up to 16 million tons per annum. The associated rail and port infrastructure has been designed to handle the increased load requirements. The final stage of the operation is expected to reach the peak of its planned operational capacity.

Although some delays were encountered in the initial stages of design and engineering, the project achieved significant milestones in a relatively short time. This is somewhat indicative of the current Australian iron ore industry, especially that of Western Australia. By November 2009, construction had kicked off and the first DSO was mined in March 2011, ramping up to 2 million tons per annum. Prior to the first overseas shipment, ore was stockpiled until the final commissioning of the port terminal in 2012. The first magnetite shipment to China was on January 1, 2013.

Karara is a prime example of activity in the Australian resource sector, especially that of the iron ore industry. Extensive efforts are required to enable projects to reach the operational stages. The isolation of many of the mines throughout the resource-rich area makes development a logistical battle. Some of the issues include housing, transport, water and power requirements.

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