Gindalbie Metals has secured an agreement for a second $30 million loan from its joint venture partner in the Karara magnetite iron ore development, after delays in the project’s production ramp up resulted in shipments going out below forecast.
Gindalbie and its joint venture partner Ansteel poured in $50 million each in interest-free loans to the Karara project in the March quarter, a capital injection that was followed up in April by two $30 million loans on the same terms.
Today, Gindalbie said the Chinese steelmaker had agreed to advance a second $30 million loan to Karara Mining, the subsidiary that owns the Karara project, subject to Foreign Investment Review Board approval.
Karara will use the funds to repay Gindalbie’s $30 million loan, allowing the listed company to return its cash levels to what it called “more comfortable levels”
Ansteel has also given Gindalbie the option to purchase the second loan at face value, plus an interest rate of 6 per cent.
If Gindalbie fails to buy the loan within 12 months, it has been agreed that Ansteel may convert all or part of its two loans to Karara totaling $60 million into Karara shares. This would potentially deliver it an extra 4.51 per cent shareholding.
Gindalbie managing director Tim Netscher said the company was “grateful to our joint venture partner and major shareholder for this interim financial support they have provided”.
“This gives us sufficient headroom and we now have a number of options in front of us over the 12 month period to allow us to repay the loan and maintain our 50 per cent interest in Karara..
“These options include pushing ahead with the development of the Shine DSO project, which is expected to generate a healthy return and/or the sale of our Lodestone magnetite project.”
Gindalbie said shipment rates were improving at Karara, with the concentrator running at 70 per cent capacity.
The operation should be running at full capacity of 8 million tonnes per year during the June quarter, Gindalbie said.
“Considering its size, the commissioning and ramp-up of the Karara project is proceeding extremely well, and we expect to be cash-flow positive within months,” Mr Netscher said.
“Given this outstanding progress and the fact that we are now on the cusp of generating surplus cash flow, we are determined to ensure that Gindalbie is not hit by the headwinds of turbulent global commodity and equity markets just as we are about to complete this journey.”
At close of trade today, Gindalbie shares were down 2.7 per cent, trading at 18 cents.
