CITIC Limited Half-Year Report 2019

45 CITIC Limited Half-Year Report 2019 For the six months ended 30 June 2019 3 Critical accounting estimates and judgement (continued) (b) Mineralogy Pty Ltd (“Mineralogy”) disputes (continued) Option Agreement Dispute (continued) In its amended defence and counterclaim, Mineralogy makes allegations of breach, repudiation, frustration and termination of the Option Agreement on various grounds, among other allegations. Mr. Palmer filed his own defence, which repeats and relies on the matters pleaded by Mineralogy in its defence. Mineralogy’s counterclaim seeks damages of US$205,000,000 (which it says is the purchase consideration for the further company) and damages equating to the royalties that would have been payable by the further company to Mineralogy on the amount of magnetite ore required to produce six million tonnes of iron ore concentrate. The CITIC Parties have made an application for a separate trial of preliminary issues in this proceeding. The application is scheduled for a half-day hearing on 11 October 2019. No trial date has been set for this proceeding. Royalty Component B Dispute The MRSLAs provide that Sino Iron and Korean Steel must pay a royalty to Mineralogy, a component of which (“Royalty Component B”) is payable on products produced and calculated by reference to “prevailing published annual FOB prices” (expressed in US dollars per dry metric tonne unit) for Brazilian pellets and Mount Newman fines. In Proceeding CIV 1808/2013 (originally commenced in the Supreme Court of New South Wales but transferred to the Supreme Court of Western Australia), Mineralogy pursued a claim against Sino Iron and Korean Steel seeking payment of sums in respect of Royalty Component B on products produced up to 31 March 2017, damages for alleged breaches of the MRSLAs and certain other relief. In that proceeding, Mineralogy also pursued a claim against the Company pursuant to a guarantee given under the Fortescue Coordination Deed (“FCD”), one of the project agreements for the Sino Iron Project. The CITIC Parties’ position was that, among other things, because of the cessation of the Annual Benchmark Pricing System (“Benchmark”) in early 2010, there was no longer any “prevailing published annual FOB price” (“Disputed Phrase”) for the relevant products, and therefore it was no longer possible to calculate Royalty Component B. Mineralogy’s position was that the Disputed Phrase was not limited to a reference to Benchmark prices and Royalty Component B was ascertainable by using published data, undertaking certain calculations and making certain adjustments. The trial in Proceeding CIV 1808/2013 ran for 10 sitting days from 14 June 2017. Justice K Martin delivered his reasons for decision on 24 November 2017, finding in favour of Mineralogy, including as to the proper construction of the Disputed Phrase and the calculation of Royalty Component B. Following delivery of the reasons for decision in Proceeding CIV 1808/2013, Mineralogy commenced a further proceeding in the Supreme Court of Western Australia against the CITIC Parties (“Proceeding CIV 3024/2017”) seeking the same relief as that sought in Proceeding CIV 1808/2013. On 18 December 2017, Justice K Martin ordered, among other things, that Proceeding CIV 1808/2013 and Proceeding CIV 3024/2017 be consolidated and that all claims be determined in the consolidated proceeding. Notes to the Consolidated Financial Statements