Rizhao Steel Holding Group said 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.

Xinhua news agency reported that the private steel company, based in east China's Shandong province, disagreed with the arbitration ruling and will start 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.

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

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 2.4Mt/y of iron ore from Mount Gibson, said the board member.

However, Rizhao Steel suspended the imports in September 2008 as the company found the iron ore Mount Gibson supplied was 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 increased production costs and resulted in reduced profits.

"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.