cheap chinese debt to buffer gindalbie

Good read from the Australian today.

CHEAP debt sourced from China will protect Gindalbie Metals' Karara iron ore project in Western Australia from the headaches suffered in recent days by Fortescue Metals Group, says Gindalbie chairman George Jones.

Speaking at the formal opening of the $200 million Karara export terminal at Geraldton in the Mid-West of Western Australia, Mr Jones said he was unconcerned about Gindalbie's debt exposure despite recent volatility in iron ore markets.

"Our facilities were financed by China and the rates we are paying are relatively cheap compared to other debts," he said. "We do have debt but we are paying a very low rate of interest and the margins on this project can service this interest. The interest rates aren't a concern for us."

Fortescue on Tuesday announced a $US4.5 billion ($4.3bn) debt refinancing package aimed at easing investor concerns that the company was in danger of breaching its debt covenants.

The construction of Karara, a 50-50 joint venture between Gindalbie and Chinese steelmaker Ansteel, is being funded through about $1.7bn of debt sourced from a syndicate of Chinese banks headed by China Development Bank.

The Karara project is nearing completion, with the first shipment through the newly opened port facilities at Geraldton due to take place later this month.

Mr Jones said operating costs at Karara were set to average just under $70 a tonne excluding debt, but the 20 per cent premium paid for the product out of Karara would protect the company's margins even if iron ore prices cooled further.

"This project has been designed to be here for 50 years and we can absorb changes in the iron ore price," he said.

Mr Jones said he always believed Fortescue founder Andrew Forrest was capable of solving the company's balance sheet issues.

"They can't fail. China won't let Fortescue fail and the market won't let Fortescue fail," he said.

The port facilities unveiled by Gindalbie will service the needs of the first two stages of production at Karara, with the wharf capable of handling up to 16 million tonnes of magnetite concentrate a year.

Mr Jones said he expected Gindalbie and Ansteel to begin considering a further expansion of Karara -- which has been designed to handle more than 30 million tonnes a year of production -- by the middle of next year. "We want to get the plant running and everything functioning to show everybody that it actually works, then we will talk to equity participants and debt participants about their appetite to go further," he said.