Gindalbie Metals yesterday became the second miner to point out that the proposed mining super profits tax will not impact expansion plans from proceeding.
Gindalbie and Brockman Resources (on Monday) made it clear that they don’t like the proposal, but both said it hadn’t damaged relations with their respective major Chinese partners.
Both companies expressed a cautious optimism, unlike some of the more vocal claims from bigger groups like BHP Billiton, Rio Tinto and Fortescue Metals
Gindalbie told the ASX yesterday in a statement that its Karara iron ore project is going ahead with the full support of Ansteel, its Chinese partner, despite the tax.
The company also confirmed the earlier announced plans to raise $175 million from existing shareholders and new groups.
The issue will test whether investors don’t like the tax and are on some sort of strike, as claimed by some more excitable commentators.
"The proposed tax changes will have a significant impact, as they will reduce the returns for the project and put planned and possible expansions at risk," Gindalbie said in its statement.
Gindalbie shares fell a cent yesterday after rising in early trading. The 1% fall outperformed the 2% drop in the wide market.
Gindalbie says the Karara project is planned initially to generate $1 billion annually in export revenues, building to $3 billion as the project expands.
The project is to generate around $55 million a year in government royalties on start-up when the existing rules are applied, climbing to $165 million a year as the project expands, the company said.
These royalty payments are in addition to corporate and other taxes that the company is obliged to pay, Gindalbie said.
Gindalbie said it did not view the project’s returns as "super profits" but, rather, an acceptable return for the high risk taken by investors. Gindalbie said the RSPT should apply to new investments, not to existing projects or projects already under construction.
"Karara is caught ‘mid-stream’ by the proposed tax," Gindalbie said.
"It will have an additional tax impost but fails to receive any real benefits through accelerated depreciation, government-provided infrastructure or the exploration subsidy.
"The notion that a return above the long term bond rate, currently about 5.7 per cent, is a super profit defies all investment logic, particularly in the high-risk resources sector," the company said.
"Debt providers understandably want to see returns well above the company’s cost of capital, which is more like 12 per cent."
Gindalbie said it remains in talks with the federal government over the tax, but believes the government’s assumed outcomes from the RSPT are "unjustified and unproven". It said the government’s arguments presented in support of the RSPT are misleading and subjective.
To ensure it is well funded to support the successful development of Karara, Gindalbie will conduct two conditional placements to raise a minimum of $175 million, as announced to the ASX on 13 May 2010.
The two placements, as detailed below, both require the approval of shareholders at a meeting on June 16.
Ansteel will contribute between $63.2 million and $74.6 million. The final amount placed with AnSteel will ensure it retains its 36.12% stake in Gindalbie.
And certain eligible Australian and international institutions are also supporting the raising, indicating they will contribute $111.8 million between them.
As well, Gindalbie is also offering eligible shareholders in Australia and New Zealand the opportunity to take part in this next phase of its growth by participating in a Share Purchase Plan (“SPP”), to subscribe for up to $10,000 new fully paid shares in Gindalbie per shareholder.
The SPP will be offered at the same price as the shares are being offered to AnSteel and the eligible institutional investors under the Ansteel Placement and the Institutional Placement. Gindalbie is seeking to raise a maximum of $20 million through the SPP.
Gindalbie shares fell 3.3%, or 3.5c, to 93.5c in yesterday’s weak market.
On Monday Brockman Resources said in a statement to the ASX that its relationship with Sinosteel Australia Ltd and the development of its Pilbara iron ore project had not been affected by the proposed Resources Super Profits Tax (RSPT).
Brockman said that it "steadfastly refutes" claims carried in a report on May 19 by Dow Jones Newswire which suggested the company’s relationship with Sinosteel had changed because of the possible introduction of the RSPT.
"Brockman is continuing to work productively with Sinosteel to achieve a mutually beneficial outcome with regard to both potential off-take and strategic investment scenarios between the companies for the Marillana Project," Brockman said.
Market speculation that Brockman’s strategic relationship with Sinosteel would change because of the proposed RSPT is "completely incorrect", the company said.
Brockman said on Monday the project is progressing on schedule and the Definitive Feasibility Study (DFS) was 68% finished.
Brockman said it remains in a strong technical and financial position to complete the DFS on schedu
