expansion plans and ansteel visit

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Attention ASX Company Announcements Platform
Lodgement of Open Briefing®
Gindalbie Metals Ltd
London House, Level 9
216 St Georges Terrace
Perth, WA 6000
Date of lodgement: 02-Jun-2008
Title: Open Briefing®. CEO Outlines Expansion Plans & Opportunities
Record of interview:
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Gindalbie Metals Limited (ASX Code: GBG) have commenced a Feasibility Study
on increasing the magnetite start-up production rate of the Karara Iron Ore Project
from 8 Mtpa (4 Mtpa concentrate and 4 Mtpa pellets) to 12Mtpa of magnetite
concentrate. The Feasibility Study will also assess the viability of further
increases to the magnetite concentrate production rate. How long will this take?
Would any additional capital be required above your original BFS estimate? What
would the likely product mix (concentrate vs. pellets) be under an expanded
production scenario?
CEO Garret Dixon
You have to think about where Gindalbie came from. When we started with our
equal joint venture partner Ansteel we thought we had a 400 million tonne
Exploration Target at Karara and we looked at a potential mining rate of 20 Mtpa
to provide our estimated concentrate production rate of 8 Mtpa.
However, Karara has proven to be a much richer orebody than first anticipated
with drilling to date defining a 497 million tonne Reserve plus a 929 million tonne
Resource of available magnetite iron ore. We are currently drilling to define our
magnetite Exploration Target of 2.2-2.8 billion tonnes, which would equate to 0.9-
1.1 billion tonnes of concentrate grading 68-69% - or 1 billion tonnes of a high
grade Direct Shipping Ore equivalent, if you like.
As a result, our production rate could comfortably be three times the level of our
Bankable Feasibility Study and possibly more. As a first stage, we’ve started to
look at increasing the start-up rate to 12 Mtpa. We know that Ansteel are also
very keen to get more ore for their own expansion plans, which involve lifting
their finished steel production from 24 Mtpa to more than 50 Mtpa by 2011.
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Any increase beyond the current 8 Mtpa of concentrate production will require
additional capital and we’re doing the feasibility studies on the costs of the
upgrade at the moment. We will know that by the end of the year, however
doubling the production capacity does not mean a doubling of the original capex
estimate. A large amount of the up-front capital for this project goes into
infrastructure with built-in additional capacity and we will be able to utilize that
with any expansion. As a ballpark estimate, the cost of an identical concentrator to
the one planned, which would double production to 16 Mtpa, might cost A$600-
800 million.
With regard to product mix, we haven’t yet had any detailed discussions about
what would be the future (expanded) mix between concentrate and pellet. It is no
secret however, that pellet products are becoming increasingly valuable and that
has been reflected in the increased prices for this product recently announced.
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Under your current agreement with joint venture partner AnSteel, the Karara
project will provide 80% of the feed to their Bayuquan steel mill in China. With
the planned production expansion at Karara, how will the Bayuquan mill
accommodate any additional ore? What are the options for Gindalbie as the
Karara project ramps up to your longer-term target of +30Mtpa of iron ore
products? What about including potential ore from sources like Lodestone?
CEO Garret Dixon
Last week we had the opportunity to take some brokers and analysts up to northern
China to see first hand the AnSteel facilities; to meet Ansteel executives and to see
the new Bayuquan steel mill. We also had the opportunity to visit a mine,
concentrator and pellet plant similar to the facilities we’ll be building as part of the
Karara project.
At the port at Yingkou, AnSteel are two months from commissioning the 6.5 Mtpa
Bayuquan steel mill. The mill’s location adjacent to the port has been purposely
chosen to receive imported ore from Karara and AnSteel are already talking about
further expansions to its steelmaking capacity in expectation of additional feed
from Karara. During the broker visit, Ansteel was very open about the importance
of Gindalbie and Karara to its own expansion plans.
Our JV with Ansteel is just for the Karara project and excludes potential ore from
projects like Lodestone, which we are looking at developing ourselves further
down the track; potentially with other partners. We’d certainly talk to Ansteel but
we’re not locked into them for Lodestone or our other tenements.
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You recently announced an Exploration Target for DSO hematite of 80-100 Mt at
59-60% Fe. Where do you see the best opportunities to expand this resource base?
Does this mean an increase in hematite production? Is this scenario included as
part of your current feasibility study options?
CEO Garret Dixon
We’ve always focused on Karara as our cornerstone project.
We’ve also recognised that across our tenements there is significant potential for
other production sources and opportunities, which Gindalbie can pursue in its own
right. These include the Warriedar Joint Venture with Royal Resources which has
revealed some promising hematite prospects.
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In recognising this, we have redirected some of our internal resources toward
accelerating development of these prospects, in particular those with capacity for
DSO.
We certainly have the management capability and the financial capacity to develop
these projects in our own right without Ansteel. The Karara JV with Ansteel
makes up only 20% of the 1900km2 of tenements Gindalbie have in the Mid-West
region. This means there’s a lot of prospective ground out there that we have yet
to scratch the surface of.
Along with our magnetite expansion plans, we are currently examining the
potential to increase hematite production from Mungada from an initial 2 Mtpa
DSO in 2009 to 3 Mtpa. None of the hematite resource development work we’re
doing outside the Karara JV area is part of any current feasibility study.
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With Gindalbie’s available capacity at Geraldton port around 14Mtpa, can you still
use the Geraldton port with an expanded production footprint? Do you plan to
utilise future capacity at the yet to be constructed Oakajee port?
CEO Garret Dixon
We are certainly working very closely with the Geraldton Port Authority toward
realising our first production goals in 2009 for hematite and 2010 for magnetite.
This can be comfortably accommodated within the existing infrastructure
framework and is the best way we can get our product to market.
To realise the full potential of the Karara project - under an expanded production
scenario - we would need to access the planned Oakajee port. We have spoken to
the consortiums involved with its development and we strongly support them both.
Our intention is to move at least 15 Mtpa through Oakajee port and we’re doing
everything we can to make sure Oakajee goes ahead as we believe it’s the right
solution for development of the mid-west region as the next iron ore province in
Australia.
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In a recent presentation you revealed the dollar value of magnetite net to Gindalbie
was more than 28 times that of hematite. Why don’t you just focus on growing
your magnetite resource?
CEO Garret Dixon
Our magnetite resource is the largest JORC iron ore resource in the Mid-West and
will underpin a long-term project commitment to the area. Having a standalone
hematite resource allows us to get it to market quicker and importantly realise that
early cashflow. For Gindalbie, hematite is a low capital project we can do in our
own right and one that generates significant value for our shareholders.
There are different markets available for magnetite and hematite products. Our
Karara JV with Ansteel is particularly important as it is underpinned by long term
offtake agreements. Along with magnetite, Gindalbie has significant opportunity
to take advantage of the current demand strength in the iron ore market and our
extensive tenement holdings to develop our hematite resource at the same time.
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This next question is for Gindalbie’s new Chief Financial Officer, David Southam.
You have finalised an equity funding package with Ansteel for a total of A$534
million, which represents 30% of the combined Mungada and Karara project
forecast capital cost of A$1.8 billion. What are your outstanding repayment
obligations? When do you expect to make a decision regarding Gindalbie’s
funding obligations for the balance of the project’s capex? What are your
financing options?
CFO David Southam
AnSteel have made two subscription payments toward the project to date totalling
A$105 million and has remaining payments of A$267.06 million to earn its 50%
stake in the project. Under our development obligations, Gindalbie has two
contributions to make; one in July of A$18.38 million and the second in October
for A$143.68 million. The difference between the two payments is effectively part
of AnSteel’s buy-in cost. Other things Ansteel has to contribute to earn its share is
underwriting the project debt and providing product offtake.
Also, under the terms of the Karara Joint Venture Development Agreement,
Gindalbie can request Ansteel to provide debt finance for its share of equity
contributions to the Project. We have commenced discussions with Ansteel
around provision of that debt funding for Gindalbie’s equity on similar terms to
the overall project funding, which we’re finalising with China Development Bank.
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Can you give us an update on the status of the Public Environmental Reviews for
both Mungada and Karara?
CEO Garret Dixon
We’re a long way down the track with obtaining the environmental approval for
both the hematite and magnetite stages of the Karara Project. We expect approval
of the hematite project later this year. Our magnetite approvals are also on track
with a submission of our final PER to the EPA early next month with approvals
expected in early 2009.
Some time ago, the West Australian government instigated the Mid-West Review
to look at the various iron ore projects in the region. The main aim of the review
was to ensure that these projects could proceed. In that review, it was noted that
with Karara, the Government was pre-disposed for the approval of the magnetite
project as it delivers significant benefit to the State. However, the Government
indicated reservations about some of the hematite proposals.
The smaller hematite start-up phase of Karara is made up of deposits located on
both the Karara and nearby Mungada tenements and as we have previously pointed
out the tenements which cover the Mungada Ridge present some environmental
challenges. We are working with the Government agencies on the best way
forward but it may be a case of reaching some sort of compromise regarding those
hematite deposits contained within the Mungada Ridge, at least while further
studies of the biodiversity of the area are conducted.
What we are quite confident of is that this will not affect our plans to have a startup
hematite operation in 2009 at Karara, or our planned production level of 2-3
Mtpa. As I pointed out earlier, we also have an aggressive exploration program
for DSO hematite across all our tenements with significant targets and we are very
confident more than replacing any resources that we may temporarily suspend.
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What are the immediate priorities for Gindalbie?
CEO Garret Dixon
We continue to work very hard on the engineering side of the project and have
already started the process for ordering long lead items such as ball mills and
crushers. Our attention is also focused on continuing our work toward securing
environmental approvals as well as finalising the project debt arrangements of
China Development Bank. Whilst we have existing agreements for Ansteel to take
all the offtake at market rates for the project, we are also finalising the indices to
be used for those market rates and we should be able to do this shortly after the
current ore price negotiations have settled. It certainly looks as though the 2008
ore price increase will be somewhere between 65% and 85%, which augurs very
well for our project and the returns going forward.
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Thank you Garret & David.
For further information on Gindalbie Metals Limited visit www.gindalbie.com.au
or call Garret Dixon or Michael Weir on +61 8 9480 8700.
To read other Open Briefings, or to receive future Open Briefings by email, please
visit www.corporatefile.com.au.
DISCLAIMER: Corporate File Pty Ltd has taken reasonable care in publishing the information contained in this Open
Briefing®. It is information given in a summary form and does not purport to be complete. The information contained is not
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COMPETENT PERSON COMPLIANCE STATEMENT: The information in this document that relates to Exploration Results,
Mineral Resources or Ore Reserves is based on information compiled by Mr Andrew Munckton who is a Member of the
Australasian Institute of Mining and Metallurgy. Mr Munckton is a full-time employee of the Gindalbie Metals and has
sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the
activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code
for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Munckton consents to the inclusion in the
presentation of the matters based on his information in the form and context in which it appears.
JORC – EXPLORATION TARGETS: It is common practice for a company to comment on and discuss its exploration in
terms of target size and type. The information relating to exploration targets should not be misunderstood or misconstrued
as an estimate of Mineral Resources or Ore Reserves. Hence the terms Resource(s) or Reserve(s) have not been used in
this context. The potential quantity and grade is conceptual in nature, since there has been insufficient work completed to
define them beyond exploration targets and that it is uncertain if further exploration will result in the determination of a
Mineral Resource.
Karara Hematite
Reserve Classification Mt Fe % SiO2 % Al2O3 % P % LOI
Probable Reserve 10.9 61.7 6.0 2.2 0.10 3.5
Resource Classification Mt Fe % SiO2 % Al2O3 % P % LOI
Indicated 6.9 62.5 5.2 1.4 0.13 2.7
Inferred 9.3 61.1 6.3 3.0 0.12 4.3
Subtotal 16.2 62.0 5.6 2.0 0.12 3.3
Note: 1. The reserve was defined to provide sufficient material from the indicated resource material to support a minimum of 6 year
mine life.
2. Resources are exclusive of Reserves
Karara Magnetite
Reserve Classification Mt Fe % SiO2 % Al2O3 % P % LOI
Probable 497 36.3 42.71 0.89 0.089 -0.74
Resource Classification Mt Fe % SiO2 % Al2O3 % P % LOI
Indicated 158 36.4 42.65 0.82 0.091 -0.69
Inferred 771 36.2 42.76 0.94 0.087 -0.79
Subtotal 929 36.3 42.71 0.89 0.089 -0.74
Note: 1. The reserve was defined to provide sufficient material from the indicated resource material to support a minimum of 6 year
mine life.
2. Resources are exclusive of Reserves