gindalbie seeks buyer for loadestone

By David Winning
Gindalbie Metals trumpeted the Lodestone iron ore discovery as a key addition to its “strategic growth pipeline” in February. Now, the Perth-based miner has appointed PwC to sell it off.


The process will be a litmus test of investor confidence in the Mid West region of Western Australia state that was once touted as the next major production hub to feed Asia’s demand for iron ore. The Mid West is rich in magnetite, a lower grade form of iron ore, that is costly to produce and miners must overcome bottlenecks on rail lines and at port.

Gindalbie is selling Lodestone to focus on the development of its Karara project, located just 45 kilometers away, a person familiar with the matter told Deal Journal Australia. Karara, which involves the two-phase construction of a mine producing up to 16 million tons of iron ore annually, has a clear route to market with allocated capacity at the port of Geraldton.

But several other promising deposits rely on Japan’s Mitsubishi finding partners to go ahead with the multibillion dollar Oakajee port and rail development, or even sanctioning construction on its own. That won’t be easy to do given that funding is hard to come by these days and iron ore prices are at a two-and-a-half year low of US$114.90 a ton.

Lodestone – a 1.5 billion ton magnetite resource – is among those deposits without obvious port access until a decision is made on Oakajee, which may make it a hard sell.

Investors will need a positive view on iron ore prices as magnetite is more expensive to produce than the hematite found in the Pilbara region further north. Whereas hematite has an iron content of more than 60% and can be used directly in blast furnaces when making steel, the iron content of magnetite is often below 50% and it needs to be processed first.

Sentiment may have picked up after Rio Tinto said Wednesday it expects economic growth in China, which accounts for roughly 60% of all iron ore imports globally, to rebound later this year as Beijing spends billions of dollars on new infrastructure. That would shore up demand and support iron ore prices, especially if the US economic recovery also gathers pace and Europe gets on top of its debt woes.

But the Mid West risks being overshadowed by tens of millions of tons of new iron ore production in the Pilbara due to come on stream over the next few years, including Rio’s plan to lift annual output as high as 353 million tons by the first half of 2015 from a planned 283 million tons by the end of next year.

Asian investors, notably from China, have previously taken large positions in the Mid West to secure iron ore supply. Gindalbie’s joint venture partner at Karara is Ansteel, China’s second-largest steelmaker after Hebei Iron and Steel Group.

But the Chinese have slowed resources investments in Australia as their demand for iron ore softens, while they have become more comfortable with buying on the spot market. Deal flow involving Chinese investors for Australian resources projects is down by roughly two-thirds so far this year, according to data from Dealogic.

Gindalbie wants to sell Lodestone to raise funds for its other mines, especially as it has yet to conclude talks with China Development Bank on an additional debt facility for Karara. In the hope of getting a deal for Lodestone away, Gindalbie will highlight the potential to share Karara’s mine infrastructure such as power supply and a rail line.

But with port access unclear and iron ore markets sluggish, that may not be enough.

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