Gindalbie hit by $640m impairment

Iron ore explorer Gindalbie Metals has flagged a $640 million hit to its investment in Karara Mining, after it completed a review of its assets.

The move follows speculation over the last fortnight that Gindalbie would sell its interest in the Karara project.

The company cited capacity restrictions, a lower than forecast iron ore price and a higher than anticipated Australian dollar as key factors behind the impairment of the project located 200 kilometres east of Geraldton.

The price of iron ore has fallen by nearly a third since this time last year.

Karara has invested more than $1 billion in the project, including a dedicated 16mtpa export facility at Geraldton port, utilities connections and an 85 kilometre rail line, all of which will be common use infrastructure.

The electricity transmission line was sold for a net price of more than $80 million in August.

Earlier this year, Chinese steelmaker and joint venture partner Ansteel increased its stake in Karara Mining to 52.1 per cent, whilst Gindalbie holds 47.8 per cent.

Ansteel had provided $60 million in loans to Karara in 2013, on the provision that it could convert those into equity, and also holds an option to extend its equity to 62 per cent in exchange for providing $230 million in working capital.

Ansteel’s nominee Chen Ping was also appointed managing director at Karara at that time.

He remains in that position and chairs the joint venture's board.

In April, Gindalbie managing director Dale Harris stepped down from his role to directly oversee Karara as chief executive officer, and the company said it expected magnetite output to reach 75 per cent of nameplate capacity but would be fighting bottlenecks in its tailings system.

Production at the 75 per cent level would be around 6.6 million wet metric tonnes per annum, but the June quarter report showed production of just under 900,000 wet tonnes of magnetite and 1.1 million wet tonnes of hematite for the quarter.

Gindalbie fell 15.5 per cent on the news, to 4.9 cents per share, continuing a slump from over 17 cents per share this time last year.

The company says the impairment charge will be recorded in its 2014 financial year accounts, but won’t affect its ability to continue to operate its business.