The day GBG became a minority partner in KML was the day this...

The day GBG became a minority partner in KML was the day this offer was in the making.

Simplest thing that could happen is that Ansteel should have just bought GBG out of KML. Even returning the $50m interest free loan and walking away is significantly better than this. There is zero oversight in the operation and fair play of the product coming from KML.

I have worked with so many companies with complex buying arrangements. For instance, I did a job with Quantum, a division of Transpacific that would actually use sucker trucks from a direct competitor because they would cost half the price of going internal (full fair, no retail discounts or negotiation). When you look at the realised price for our very high grade ore something has always seemed odd and it has always been that it didn't really generate a significant premium (which is the whole bloody point). The sole customer controlling the mine is never smart if you're a minority partner. It should have been set up as offtake agreements, Ansteel got 50% of the ore, GBG got 50% of the ore and both parties had to 'reimburse' the entity at cost and an ability to market product direct from port.

The biggest problem was not necessarily the cost of the processing facility and mine (that's a problem for sure) but the significant delay in volume production meant that significantly more debt was loaded onto KML. Add to that the over development of infrastructure may have seemed smart at the time but it was dumb. Reduce the scope and scale of the project and reduce debt, future infrastructure (if ever required) would have been paid for out of cashflow, not debt.

I personally think this is a rotten offer, when you've lost 90%+ already losing the remaining 10% is neither here nor there, but a high grade IO mine that is currently cashflow positive, heading into a world in which climate change becomes more and more significant should mean that this ore will command an ever greater premium. At 2.6c, there is no upside. Returning the $50m loan would see GBG having $80m in the bank, and an inferred 5c share price.

Conclusion- There is only upside for Ansteel in this deal, it simply crystallises a significant loss for almost all GBG retail shareholders and ensures there is no opportunity to get any benefit.