Gindalbie executed a wide-ranging Joint Venture Development...

Gindalbie executed a wide-ranging Joint Venture Development Agreement with leading Chinese steel and iron ore producer Ansteel in September 2007 to proceed with development of the Karara Magnetite Project through a 50:50 incorporated Joint Venture.

Located 225km east of Geraldton, the Karara Magnetite Project will involve a A$1.6 billion integrated development of the world-class Karara magnetite deposit to produce both high-grade magnetite concentrate and blast furnace quality pellets for export to north-eastern China.

The Karara magnetite deposit has unique qualities in terms of its scale, quality, consistency and extremely low waste: ore stripping ratio, which will result in very low mining costs.

Key Project Metrics

• Resource – 1.43 billion tonnes @ 36.3% Fe (Indicated & Inferred)
• Ore Reserves – 497 million tonnes at 36.3% Fe (Probable)
• Ore Mined: 497Mt or 20Mtpa in the first 25 years of production
• Waste: ore stripping ratio – 0.42: 1
• Initial production of 8Mtpa of magnetite concentrate
• Average magnetite concentrate grade of 68.2% Fe with low impurities
• Pellet production of 4Mtpa at a new Joint Venture pellet plant in China
• Average pellet grade of 66% Fe
• 60 year mine life at initial 8Mtpa production rate

Bankable Feasibility Study

Gindalbie announced the results of a positive Bankable Feasibility Study (“BFS”) on the Karara Magnetite Project in September 2007, confirming the economic and technical viability of the project. The BFS contemplates:

• A conventional open pit operation with an initial 20Mtpa mining rate;
• Production of 8Mtpa of magnetite concentrate on site at Karara;
• Transportation of magnetite concentrate to the Port of Geraldton using rail as the preferred product transport mode, to accommodate future expansion (transport via slurry pipeline also remains an option);
• Magnetite concentrates to be shipped to China via a process involving transportation on barges to a location off Geraldton for loading to a trans-shipper;
• Magnetite concentrates to be shipped on Capesize vessels to China;
• The concentrates to then be further processed into blast furnace quality pellets in a new Joint Venture Pellet Plant, to be located adjacent to Ansteel’s integrated Bayuquan Steel Mill (under construction) at Yingkou, north-eastern China
• The remaining 4Mtpa of magnetite concentrate transported to Yingkou will be sold directly to Ansteel for use in its sintering operations

First production of magnetite concentrates and blast furnace grade pellets is scheduled to commence in early 2010.


The key financial outcomes of the BFS were:

• Estimated total Project Capital Costs of A$1.6 billion with a A$147 million contingency;
• NPV9% after tax of A$2.25 billion, IRR after tax of 24.6% & Project Equity IRR after tax of 37.5%;
• Free Cash Flow after tax from the initial 497Mt Ore Reserve of A$9.33 billion from the first 25 years of operation; and
• Average post tax annual Free Cash Flow of A$360 million.

Development Phase

Gindalbie and Ansteel have agreed to proceed with development of the Karara Magnetite Project, subject to:

• the signing of an Equity Joint Venture agreement for the Joint Venture Pellet Plant in north-eastern China;
• finalisation of the approval for the decision to mine within two months;
• finalisation of off-take and financing arrangements; and
• environmental approvals being received for both the Australian and China Projects.

The financing terms of the Development Agreement are generally consistent with the original Karara Joint Venture Feasibility Study Agreement with the Project proposed to be funded on a 70/30 debt to equity ratio.

For the equity component of the Project, Ansteel will contribute A$105 million plus 50% of the required equity whilst Gindalbie will contribute the balance of equity funding which equates to approximately 25% of the total equity funding requirement.

The Karara has defined feasible options for all the key services and inputs required for development of the project, including power supply, electrical reticulation, water supply sources, concentrate transport solutions and access to storage, shiploading facilities and other required services at Geraldton Port.