gindalbie accepts $162.1m ansteel share at .85, page-60

Curiously not. The fine detail will become more apparent to the market soon I suspect.

Here is Michael's reply in full:

Thank you for the email. I had not seen that Eureka Report piece but will now make contact with Tom and give him the same explanation I will give you so hopefully he will fully understand the terms of our joint venture arrangement.

Following the placement AnSteel will end up with a 36.28% stake in Gindalbie and be our biggest shareholder, and will also have an equal share in the Karara Project. Following completion of the placement and the final equity contribution AnSteel will have invested close to A$600 million by way of Gindalbie placements and Karara equity contributions. This shows a major commitment by AnSteel to the development of Karara. AnSteel has also made it clear to they want to help Gindalbie to develop into a major resources group, focused on the carbon-steel materials sector.

We don't see the increased shareholding in Gindalbie having any affect on the off-take agreement for the Karara production. To provide the background the Karara joint venture was built on three key aspects - AnSteel being responsible for arranging and underwriting all the project financing, full offtake and providing approximately 75% of the equity contributions to the project development. This is the reason why they received what was a relatively cheap entry price into a world-class orebody.

Those three key aspects are conditions subsequent to the joint venture agreement and AnSteel does not retain its 50% share of Karara unless those things are completed. As an update the equity component is now taken care of with the most recent placement announcement, and the project debt is close to being finalised with the China Development Bank.

On the offtake it was an essential part of the agreement that the off-take would be at "market prices" with no discounts applied to AnSteel. We are very close to finalising the details which will provide full transparency on pricing. What we have said previously is that the high iron content (68.2%)and extremely low impurities (0.01% P) of the Karara concentrate means that it will be priced on benchmark fines plus attract a significant premium (expected to be approx 10-20%) due to its exceptional quality.

If Gindalbie does not agree to the offtake deal being offered by AnSteel, they do not fullfill the conditions of the JV and will forego their 50% stake in the project. Gindalbie will not agree to anything that does not make money for shareholders and AnSteel does not want to lose the project. Karara is a 2.4 billion tonne orebody that AnSteel has earmarked as the key feed source for a new $US5 billion steel mill that has been built on the coast at Bayuquan in north-east China. AnSteel does not have sufficient reserves of ore itself to feed that mill and must import ore.

Where AnSteel benefits is they own 50% of the joint venture company (Karara Mining Limited) and shares in the profits of KML. This means that Ansteel "effectively" gets its half share at cost while paying full market rate for the Gindalbie half. Together, that means AnSteel has secured a long-term supply (Karara has a 50+ year life) of ore that will always be priced at below the market price. This is where the real strategic benefit of the Karara JV lies for Ansteel.