Investors seem more resigned than anxious about the increasing chance that Gindalbie Metals (GBG) will lose some of its 50% of the troubled and delayed Karara iron ore project in WA.
The company has confirmed that it has been forced to ask its Chinese partner Ansteel for a $230 million loan to fund working capital.
The news saw the shares edge up half a cent to 14c. They had fallen 3.5% on Wednesday ahead of yesterday’s announcement.
GBG YTD – Gindalbie strains to keep funding its Karara share
Gindalbie CEO Tim Netscher said in yesterday’s statement the deal gives Ansteel the opportunity to increase its stake to 62% if the loan is not repaid.
And looking at the 2012-13 results, also released yesterday, with a multi million dollar loss for 2012-13, the chances of Gindalbie repaying the loan look remote.
"Effectively, it is lower than the original 50 per cent that we started with, but it’s still a very substantial share and will still entitle us to secure any of the dividends that flow from the Karara project," Mr Netscher said.
"Gindalbie would then have money in the bank ($30m from a previous Ansteel funding deal), plus existing cash, plus anything we can raise from the sale of other assets and be in a position to turn that cash into another opportunity," he said.
The US$230 million funding package will be provided in two stages: first, through a concentrate pre-sale agreement, and secondly through a loan facility to be provided by Bank of China (and guaranteed by Ansteel).
Subject to various regulatory approvals (including the Foreign Investment Review Board), Ansteel will be granted the option to subscribe for new equity in Karara Mining Limited (KML) to provide KML with sufficient funds to repay these loans.
Gindalbie already has a separate funding deal with Ansteel, announced back in June, which saw the Chinese provide a loan that enabled it to increase its stake in the project from 50% to 52.16%.
The company announced earlier this month that problems with a tailing dam and de-watering system had stopped a planned build up in production volumes. That in turn has put pressure on its finances, forcing it to approach Ansteel for help.
Gindalbie yesterday told the market that, "Work is progressing well to implement the engineering solution to address the previously announced bottleneck with the tailings management system. The timeframe for completion of this work remains within previous guidance of three months.
"Product shipments are continuing with total exports of approximately 4.2 million tonnes of hematite and 1.5 million tonnes of magnetite concentrate. Production guidance for Karara for the six months to 31 December 2013 remains in the range of 1.5-2.0 million tonnes for magnetite concentrate and 1.9-2.1 million tonnes of hematite."
Gindalbie has already ruled out an equity issue (with the share price at 14c, there’s no room to do that), and the 2012-13 accounts released yesterday, were no help either.
And the company has already been to market to raise the best part of $100 million in a placement and issue to ‘sophisticated investors’, plus $22 million from Ansteel.
The company reported a $143.2 million loss, of which $133.5m was from its 50% of the Karara project, which had suffered a $267.1 million loss for the year.
