Ansteel agrees to boost Karara funding

Chinese steelmaker Ansteel is set to provide a further $US230 million injection of working capital into the Karara iron ore project in the Mid West, in a deal that would dilute Gindalbie Metals' stake in the project to as little as 38 per cent.

Gindalbie said today that Ansteel had agreed to provide a funding package in two stages, subject to the conclusion of a binding memorandum of understanding.

The funding will be provided through a concentrate pre-sale agreement and then through a loan facility to be provided by Bank of China and guaranteed by Ansteel.

Subject to regulatory approvals, Ansteel will be granted the option to subscribe for new equity in Karara Mining Limited.

If the deal goes ahead and Ansteel elects to convert the entire amount into equity, the Chinese steelmaker will increase its stake in the Karara project to 62 per cent, with Gindalbie retaining the remaining 38 per cent based on current exchange rates.

Gindalbie said the new funding would leave the company "cashed up, debt-free and well placed to take advantage of future opportunities" while still retaining a significant stake in the Karara project.

Chief executive Tim Netscher said the board had decided that the Ansteel funding solution represented the best option for shareholders, as issuing new Gindalbie shares at the current market price would have a far greater dilutionary effect on shareholder return. 

This is not the first time Gindalbie has been forced to seek extra working capital from Ansteel, with the Chinese firm injecting $84 million into the project in July and loans of $50 million and $30 million earlier this year.

Ansteel agreed to take majority ownership of the Karara project in June in exchange for providing finance to cover any cash shortfalls that might arise from the joint venture partners’ long-term financing agreement from China Development Bank.

Gindalbie flagged earlier this month that it would need extra working capital to see out the end of the year, with its processing facility at the Karara project unable to run at capacity for extended periods as a result of restrictions in the process used to extract water from dry tailings. 

Gindalbie shares were up 7 per cent on the back of the news at 15 cents at 9:20AM WST.