Gindalbie seeks $206m for Karara

Gindalbie Metals plans to tap the market for up to $206 million to fund its Karara iron ore joint venture, days after it announced a capital cost increase at the Mid West project.

In a statement today, the company said it was seeking between $175 million and $206.4 million through two offerings and a conditional placement with its JV partner, AnSteel.

Gindalbie said it planned to raise $111.8 million through an institutional bookbuild which will be complemented by a placement to AnSteel to raise between $63.2 million and $74.6 million.

AnSteel's placement amount will be adjusted so that the Chinese company retains a 36.12 per cent shareholding in Gindalbie.

Existing Gindlabie shareholders will also be able to participate through a share purchase plan that aims to raise up to $20 million.

Funds from the raising will be used to fund Karara, which has an increased capital cost of $1.98 billion, up 20 per cent from a 2007 bankable feasibility study. The increase was due to a revised wider scope of the project.

The partners have already made joint equity contributions totalling $534 million to the project and are currently securing a $US1.2 billion ($A1.3 billion) project loan facility from the China Development Bank and Bank of China.

The revised project cost will require both companies inject a further $122 million, which will be split equally between the pair.

Gindalbie breakdown of the raising comprised of $61 million for its share of the project shortfall, $107.5 million towards a $430 million agreed working capital fund and $6.5 million in fees.

Any surplus funds will be used to boost Gindalbie's cash resources, the company said.

"The funds raised will cover our required contribution to the increased construction requirement for the Karara Project, as well as ensuring that we are funded to cover all of the additional working capital requirements normally associated with a project of this size," Gindalbie managing director Garret Dixon said.

"Given the ongoing support Gindalbie and AnSteel have received from China Development Bank and Bank of China with the main project loan, I am confident KML will achieve a very good outcome for the working capital debt arrangements."

The raising is subject to shareholder approval, with a meeting scheduled for next month. Approval from the Foreign Investment Review Board is also needed.

Gindalbie expects to finalise the $US1.2 billion loan facility by the end of this financial year.

Shares in Gindalbie were this morning placed in a trading halt and last traded at $1.16.

The announcement is below:

Gindalbie Metals Limited (ASX: GBG - "Gindalbie") is pleased to announce it is seeking to raise a minimum of $175 million (capital raising) to assist with the development of the Karara Iron Ore Project (Karara Project) in Western Australia.

The capital raising will comprise a $111.8 million conditional share placement via an institutional bookbuild and a conditional placement to its Karara joint venture partner and largest shareholder, AnSteel to raise between $63.2 million and $74.6 million. In addition, Gindalbie is offering eligible shareholders in Australia and New Zealand the opportunity to participate in a Share Purchase Plan (SPP) of up to $10,000 per shareholder to raise up to $20 million.

Depending on the amount raised in the proposed SPP, the AnSteel placement will be adjusted to allow AnSteel to remain a 36.12% shareholder in Gindalbie, resulting in the total amount raised being a minimum of $175m and a maximum of $206.4m.

The proceeds of the capital raising will be used to fund Gindalbie's share of the revised construction cost estimate for the Karara Project and to assist with the Karara Project's working capital requirements, as announced on May 5, 2010.

Gindalbie and AnSteel have already made joint equity contributions totaling $534 million to the Karara Project and are in the final stages of securing a Project Loan Facility of US$1.2 billion (A$1.319 billion) from China Development Bank and Bank of China. The facility agreement and documentation is expected to complete by 30 June 2010. The revised construction cost estimate for the Karara Project of $1.975 billion has identified an additional $122 million equity injection which the partners will fund ($61 million each), primarily due to infrastructure capacity increases. The $122 million funding requirement is based on the Project Loan Facility being drawn down at an assumed average A$/US$ exchange rate of $0.91.

Gindalbie has identified a future working capital funding requirement of approximately $430 million made up of precommissioning items (insurance, building spares inventory, mining pre-strip) of $184 million and Finance Facilities (bonds, interest and working capital) of $246 million.

To finance the future working capital funding requirement, Gindalbie and AnSteel have concluded a separate agreement whereby AnSteel will facilitate the procurement of debt funding arrangements to cover the bulk of the working capital requirements. The partners have agreed to target a funding structure based on a 70:30 debt to equity basis, which is the same as the project loan structure agreed for the Karara Project. However the Joint Venture is also mindful of changing market conditions in the future which may result in the application of different debt-to-equity ratios. Accordingly, Gindalbie is planning to allocate up to $107.5 million of the capital raising toward the working capital requirements of the Karara Project, being equivalent to a 50:50 debt equity ratio.

Any surplus funds raised by the equity raising will be used to strengthen Gindalbie's cash resources to underpin future growth opportunities at Karara. As an interim arrangement to meet specific term sheet requirements for the Project Loan Facility, Gindalbie and AnSteel have each agreed to contribute an additional $23 million in equity to the joint venture company Karara Mining Limited (KML) prior to loan draw down.

Capital Raising Details

The equity raising comprises:

 a $111.8 million conditional share placement to institutional investors with the share price being determined by way of a bookbuild;

 a conditional share placement to AnSteel at the same price as the institutional placement price to raise between $63.2 million and $74.6 million. Depending on the amount raised in the SPP, the AnSteel Placement will be adjusted to allow AnSteel to remain a 36.12% shareholder in Gindalbie.

 a Share Purchase Plan for eligible shareholders to apply for up to $10,000 of new shares at the same price as the institutional placement, to raise a maximum of $20 million.

In total the capital raising will raise between $175 million and $206.4 million, depending on the take-up of the SPP. The capital raising is non-underwritten.

The institutional placement and the AnSteel placement are both subject to shareholder approval at an extraordinary general meeting that is expected to be held in late June. Gindalbie must also obtain a waiver of Listing Rule 10.13.3 to enable settlement of the AnSteel placement to potentially occur more than 1 month after shareholder approval.

The institutional placement and the AnSteel placement are also both subject to shareholders passing the resolution contained in the Notice of Meeting issued by Gindalbie seeking approval of a share mortgage and cross charge to be granted over Gindalbie's shares in Karara in favour of AnSteel and a related entity. The resolution is to be put to shareholders at a general meeting scheduled to be held at the Swan Room, Parmelia Hilton Hotel, 14 Mill Street, Perth, Western Australia at 10.00 am (Perth time) on Wednesday, 16 June 2010.

The resolutions seeking approval of the institutional placement and AnSteel placement will be interconditional such that both resolutions must be approved for the equity raising to proceed. In addition, the SPP will not proceed if either the institutional placement or AnSteel placement is not approved by shareholders, the ASX waiver is not granted or the share mortgage and cross charge referred to above are not approved by shareholders.

In addition to shareholder approval of all resolutions referred to above and Gindalbie obtaining a waiver of Listing Rule 10.13.3 and standard listing requirements, the AnSteel placement will also be conditional upon:

 FIRB approval; and

 AnSteel obtaining all legal and regulatory approvals required for the AnSteel placement.

If the AnSteel placement does not proceed, Gindalbie will consider all other financing alternatives available - including a potential further equity raising - at that time.

Clayton Utz are Gindalbie's legal advisors for the capital raising.

Use of Funds

The proceeds of the raising will be utilised as follows:

 $61 million for Gindalbie's 50% share of the construction cost shortfall based on the revised Construction Cost estimate as announced 5 May, 2010;

 $107.5 million to fund Gindalbie's equity share of the $430 million working capital requirements for the Karara Project as announced 5 May, 2010. The final amount required will depend on the debt to equity ratio agreed following further discussions with the China Development Bank and Bank of China. The partners are targeting a debt:equity ratio of 70:30, up to a maximum of 50:50; and

 Approximately $6.5m will be used to cover fees, all legal expenses and other costs associated with the raising.

 Any surplus funds will be used to strengthen Gindalbie's cash resources to underpin future growth opportunities at Karara.

Gindalbie's Managing Director, Mr Garret Dixon, said the capital raising was by far the most significant in the Gindalbie's history and marked the beginning of an exciting new chapter for the Company and its long-standing relationship with AnSteel."The funds raised will cover our required contribution to the increased construction requirement for the Karara Project, as well as ensuring that we are funded to cover all of the additional working capital requirements normally associated with a project of this size," Mr Dixon said.

"Given the ongoing support Gindalbie and AnSteel have received from China Development Bank and Bank of China with the main project loan, I am confident KML will achieve a very good outcome for the working capital debt arrangements."