Gindalbie Metals has reached agreement in principle, subject to conclusion of a binding MoU, with its joint venture partner Ansteel to implement a comprehensive new funding solution to meet the additional working capital requirements for Karara Iron Ore Project arising from delays in production ramp-up.
The US$230 million funding package will be provided in two stages - first, through a concentrate pre-sale agreement and secondly, through a loan facility to be provided by Bank of China (and guaranteed by Ansteel). Subject to various regulatory approvals, Ansteel will be granted the option to subscribe for new equity in Karara Mining Limited (KML) to provide KML with sufficient funds to repay these loans.
If Ansteel elects to convert the entire amount into equity, based on current exchange rates, it would increase its stake in KML to approximately 62%, with Gindalbie retaining approximately 38% ownership. The Ansteel funding solution will leave Gindalbie cashed up, debt-free and well placed to take advantage of future opportunities while still retaining a significant stake in the project.
After assessing the alternative of Gindalbie raising new equity to maintain its ownership interest in KML, the Board of Gindalbie has decided that the Ansteel funding solution represents by far the best option for shareholders, as the dilutionary effect of the issue of new GBG shares under an entitlement offer at the current market price would be far greater than the impact on Gindalbie shareholders of issuing new KML shares to Ansteel.
The arrangement is to cover KML’s re-estimated working capital requirements through to the end of the year in light of the decision to temporarily reduce concentrator throughput to enable modifications to be made to the dry tailings management system. KML estimates that it will require US$230 million of funding in addition to the funding being provided under the July 2013 agreement.
Work is progressing well to implement the engineering solution to address the previously announced bottleneck with the tailings management system. The timeframe for completion of this work remains within previous guidance of three months. Product shipments are continuing with total exports of approximately 4.2 million tonnes of DSO hematite and 1.5 million tonnes of magnetite concentrate.
Production guidance for Karara for the six months to December 31, 2013 remains in the range of 1.5-2.0 million tonnes for magnetite concentrate and 1.9-2.1 million tonnes for DSO.