project operations update, page-4

This reminds me of the presentation released to the market in January 2011 when the share price was circa $1.40. In that presentation GBG mentioned the issue of cost escalations, but provided no details at the time. From $1.40 it did not stop until it hit 0.094 cents.

Here they are forecasting Magnetite production at an annualised 4Mtpa at 62% until the water extraction issue is resolved.

The statement that send shivers up the spine is:

"In light of the decision to temporarily reduce concentrator throughput, KML is reestimating its working capital requirements through to the end of the year, which will exceed the May 2013 forecast. Discussions are advanced with Karara's Chinese banking partners regarding a suitable funding solution."

Am I missing something? KML has negotiated with Ansteel a 12 month funding arrangement announced on 10 June 2013 to meet the working capital requirements of KML over that period.

In that announcement, GBG is to be diluted from 50% to 47.84%

"....as Ansteel undertakes to provide all required bridging loan finance to KML to fund any cash shortfalls over the next 12 months."

Why does KML need to discuss the matter with the working capital requirements with the banks with Ansteel on tap (but still apparently still to finalise the agreement)? IMO it sounds like Ansteel may be reneging on its commitment. Especially since the original proposal announced in June was:

“Subject to final agreements and satisfaction of conditions precedent, including Foreign Investment Review Board (FIRB) approval, Chinese regulatory approvals and bank consent, Gindalbie’s stake in Karara Mining Limited (KML)…..”

I notice that there has not been an announcement since the original proposal regarding the finalisation of the agreements and approval from FIRB. So maybe the terms of the agreement between Ansteel and KML are still being negotiated and the banks need to be satisfied that a funding solution is found.

To me this raises more questions.