04/10/2007 - 15:58

Sphere, Cape Lambert battle iron ore funding issues

04/10/2007 - 15:58

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West Perth-based Sphere Investments Ltd has joined fellow iron ore developer Cape Lambert Iron Ore Ltd in hitting a potential funding crisis, after disclosing that one of its partners was reviewing its planned participation in a $415 million funding deal.

West Perth-based Sphere Investments Ltd has joined fellow iron ore developer Cape Lambert Iron Ore Ltd in hitting a potential funding crisis, after disclosing that one of its partners was reviewing its planned participation in a $415 million funding deal.

Sphere said that Saudi Arabia Basic Industries Corporation had requested a one month extension to its funding deal after concluding that the project did not meet its rate of return hurdle.

The news comes after Leederville-based Cape Lambert went into a trading halt while waiting for Chinese investor Ding Liguo to exercise 28 million options worth around $10.1 million in the company.

That conversion is the second tranche in a two-stage plan that would see Mr Ding's Chinese steel-making group Delong Holdings Ltd take a 13.25 per cent stake Cape Lambert for around $14.6 million.

The options exercise had been expected for August, but was delayed to September 30.

Today, Sphere extended the completion date for the SABIC-Qatar Steel acquisition of a a 49.9 per cent stake in its Guelb el Aouj iron ore project to October 31, allowing the Saudi Arabian company to review its financial analysis and key project assumptions.

According to the Sphere announcement, SABIC could not secure Board approval because the proposed investment did not meet the 18 per cent return on investment normally applied to their industrial projects, based on its financial assumptions.

Sphere had agreed to sell the stake in the joint venture, a mine in Mauritania, to SABIC and Qatar Steel for around $422.7 million (US$375 million) in July, with the deal due for completion by September 30.

Under the agreement, Sphere was to retain a 50.1 per cent stake in the project with JV partner SNIM, the Mauritanian national iron ore company.

 

 

The full text of a Sphere announcement is pasted below


Sphere Investments Limited ("Sphere") announces it has granted SABIC and Qatar Steel a one month extension to the 31st of October 2007 to finalise the acquisition of a 49.9% interest in the Guelb el Aouj iron ore project (the "Project") in Mauritania as disclosed in Sphere's ASX announcement dated 31 July 2007. The extension has been granted to allow for a delay in the SABIC Board approval process. Qatar Steel has advised that its Board approval has been given conditional upon SABIC's involvement in the Project.

SABIC advised that they were unable to secure the required Board approval by the due date of 30 September 2007 specified in the MOU, and requested an extension. The reason given by SABIC for not yet being in a position to secure their Board approval was that, based on their financial assumptions for the Project, the proposed investment did not meet the 18% return on investment normally applied to their industrial projects.

SABIC confirmed its desire to continue their involvement in the project, and requested additional time to review their financial analysis and key project assumptions, including their long term DR pellet price assumption.

Sphere's Managing Director, Alexander Burns, said "both SABIC and Qatar Steel have communicated their desire to continue their involvement in the project provided their internal hurdles can be met, and as such we have agreed to provide this short extension to enable SABIC to obtain Board approval".

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