Conglomerate’s construction arm lost at least $700 million constructing one of the world’s biggest iron-ore mines
PERTH, Australia—In June 2013, Samsung officials gathered in a park here to celebrate a landmark deal with an Australian tycoon to construct one of the world’s biggest iron-ore mines. Crocodile steaks sizzled on the barbecue, while a senior executive thanked staff for securing the nearly $6 billion contract.
Samsung had built megaprojects before, like the Burj Khalifa skyscraper in Dubai, through its construction arm, Samsung C&T Corp. It figured the Roy Hill mine, owned by Australian billionaire Gina Rinehart, would be another coup, tapping into the global commodity boom.
Instead, the Korean conglomerate best known for smartphones and refrigerators lost at least $700 million in two years on its first foray into mining, Samsung C&T said. Samsung’s troubles reflected bad luck as well as its own missteps. It comes as many companies lick wounds from bad bets in mining, which promised huge returns until commodity prices began falling.
Samsung hired a contractor that collapsed into insolvency within months, delaying the project.
Unlike many mining-services firms, Samsung C&T agreed to shoulder all the risk for cost overruns, while committing to Ms. Rinehart’s aggressive timeline for iron-ore exports to start by August 2015. It agreed to pay penalties to Ms. Rinehart’s company, Roy Hill Holdings, if it didn’t reach construction milestones on time.
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