Gindalbie Metals has agreed in principle with its joint venture partner Ansteel to a restructure of the Karara Iron Ore Project in Western Australia in a move which Gindalbie says will leave it ideally positioned to take advantage of growth opportunities.
Subject to final agreements and satisfaction of conditions, including Foreign Investment Review Board (FIRB) approval, Chinese regulatory approvals and bank consent, Gindalbie’s stake in Karara Mining Limited (KML) may be reduced from 50% to a minimum of 47.84% as Ansteel undertakes to provide all required bridging loan finance to KML to fund any cash shortfalls over the next 12 months.
During this period, Ansteel and Gindalbie will assist KML to secure a new longer-term working capital facility for KML from China Development Bank. The new arrangement and funding mechanism removes the need for Gindalbie to raise further equity capital to support KML’s working capital requirements, leaving the company with more than Aus$35 million in cash and no debt.
In recognition of Ansteel’s funding support, Gindalbie has agreed to an ownership restructure of KML including negotiations of appropriate amendments to the Karara Joint Development Agreement.
The shortfall in working capital is due to delays in the general ramp-up of Karara and product shipment rates being below internal forecasts. While there continue to be no material issues with the commissioning and ramp-up, the delays and therefore reduction in shipment volumes together with the volatility of iron ore pricing, has had an impact on KML’s working capital funding position. This is because the project is effectively incurring all fixed operating costs and commissioning costs whilst not yet generating full production revenue.
The rectification of the previously-advised tailings filtration issue together with the completion of the polishing circuit are well advanced and Gindalbie maintains its guidance of achieving nameplate annual capacity of 8 million tonnes and premium (68%Fe) concentrate specifications in July. This should allow Karara to become operating cash-flow positive during the September quarter.
Gindalbie’s managing director Tim Netscher says the new funding arrangements represent a major breakthrough for the Karara project and a strong vindication of the strength and durability of the joint venture.