Rizhao Steel Holding Group said Friday it would file a lawsuit against Australian iron ore company Mount Gibson, after being ordered by an arbitrator to compensate the miner for breach of contract.

The private steel company, which is based in east China's Shandong Province, disagreed with the arbitration ruling and will institute legal proceedings in an Australian court, asking for the withdrawal of the ruling, said a board member of the company, who declined to be named, in an exclusive interview with Xinhua.

Rizhao Steel was ordered to pay Mount Gibson US$114 million, plus 6 percent of interest and legal costs, for repudiating its obligations under long-term agreements for iron ore supplies, the Australian miner said in a statement Tuesday.

The Chinese steel company signed a 15-year iron ore supply contract with the Australian miner in June 2007, according to which, Rizhao Steel imports 2.4 million tonnes of iron ore from Mount Gibson every year, said the board member.

However, Rizhao Steel suspended the imports in September 2008 as the company found the iron ore Mount Gibson supplied were substandard, he said.

"We had imported a batch of 45 cargoes of iron ore after the contract, but only two cargoes of iron ore met production standards," he said.

"The substandard iron ore had increased the production costs and resulted in reduced profits. Besides, it also caused environmental problems which led to warnings from the local environmental protection bureau," he added.

"We had requested, several times, that Mount Gibson supply us better quality iron ore. However, the situation did not change later, so in September 2008 we refused to take in iron ore from Mount Gibson,"he said.

He denied that Rizhao Steel breached the agreements as, according to him, Mount Gibson terminated the contract in November 2008.

Rizhao had filed two counter-claims for wrongful termination of the long-term agreements and for misleading and deceptive conduct during the arbitration proceedings, but were dismissed by the arbitrator, according to the Mt Gibson statement

"We have hired legal experts to analyze and evaluate the arbitration ruling and will seek a fair solution," he said.

The arbitration is said to be the first of its kind filed by an overseas iron ore miner against Chinese steel makers.

Rizhao Steel is not the only contractor that Mt Gibson had sought legal actions against, according to the Gibson statement, which noted that a number of its customers had breached agreements.

Some say the contract breaches were a result of the 2008 global financial crisis, during which the market prices of iron ore dropped below the negotiated long-term prices.

Therefore, many steel companies tore up agreements with miners to seek low-price iron ore.

However, the board official denied such speculation, insisting the substandard iron ore was the reason the cooperation could not last.

(Xinhua News Agency August 21, 2010)