set to give australia a major new iron ore min

From minesite.com on January 27, 2009

Gindalbie Looks Set To Give Australia A Major New Iron Ore Mine, At A Time Of Widespread Closures


By Our Man in Oz



Contrary to a popular view spread by gloomier members of the global community, especially those in the press corps, the China boom has not died in a ditch. Nor is it mortally wounded. Recent events involving the small Australian iron ore company Gindalbie Metals make it perfectly clear that China is simply being far more selective in how it separates winners from losers. Two weeks ago, with minimal fanfare, one of the most powerful financial arms of the Chinese Government committed itself to providing US$1.2 billion for the construction of a new iron ore mining and processing facility by Gindalbie and its Chinese partner Ansteel. Next week, Gindalbie shareholders meet to put their seal of approval on this rapidly accelerating project, which is known as Karara. And soon after that the final stage in the environmental approvals process will be reached.
If news flow is what’s required to drive a stock, then Gindalbie should shape up as one of 2009’s most interesting companies. By the end of the year, even as some other miners make further cuts in production, Gindalbie should be starting shipments of high-grade haematite iron ore to Ansteel in China. This will be followed by the initiation of the major phase of the Karara project, which calls for the mining and upgrading of lower-grade magnetite ore into a premium quality product produced specifically to meet the requirements of a recently completed Ansteel mill in north-east China.

“Symbiotic” is the best word to describe what’s happening between Gindalbie, Ansteel and the powerful China Development Bank, a government body which traditionally only funds major internal projects of national significance, such as new airports, railways, dams and highways. But, unusual as it might seem, the Karara mine, currently under development in Australia, is viewed as being inextricably linked to a major steel mill in China. That’s because the mill has been built on the coast and specifically designed to achieve its optimum performance with material shipped from Karara via the Australian west coast port of Geraldton.

On the stock market, Gindalbie has been in recovery mode since it hit a rock bottom price of A32 cents on 21st November, trashed with most of the other participants in the now shell-shocked Australian mining sector. On 14th January, the day the China Development Bank confirmed its involvement in the funding of Karara, Gindalbie shares were trading as high as A74 cents, a 131 per cent return over just 35 trading days for any adventurous investor with the luck or judgement to have called the bottom back in November. Tipping what might happen next is not a job for Minesite’s Man in Oz, but there is a growing band of hard-core mining types who reckon that China’s post-Olympics freeze is thawing, and that deals like the one involving Karara are examples of what will become increasingly common as 2009 unfurls.

One of those optimists is Michael Kiernan, once of Consolidated Minerals fame but more recently resident of a self-made doghouse. Kiernan, who will feature in a special Minesite report in a few days, has nothing to do with Gindalbie, but his views on China are very optimistic and lie at the heart of the thinking behind his new corporate vehicle, Stirling Resources. He told Minesite’s Man in Oz that the global financial crisis had provided China with an ideal opportunity to stage a “buyer’s strike”, as one part of a strategy of re-pricing its raw material imports, and of taking greater control of the production and delivery process. More from Kiernan later, though it was interesting to hear his views on the same day that we took at look at Gindalbie, as all concerned seem to share the same optimistic outlook.

At Gindalbie, brisk progress is being made on a number of fronts. Next week’s shareholders meeting, given early proxy flow, should turn out to be a ringing endorsement of management’s move to get closer to Ansteel. If so the endorsement will also cover plans for a major share placement which will leave the Chinese with a 36 per cent stake in Gindalbie and a 50 per cent stake in Karara. Opposition to the deal has been blown away by the financial crisis, and by the fact that Ansteel has been able to introduce into the project one of the few banks (if not only bank) in the world now capable of funding a new iron ore project.

After the shareholder’s meeting comes final environment approval, and while the government agency handling the process is likely to specify a few requirements, such as the funding of rehabilitation and future research, there is no chance of a government in Australia getting in the way of a new mine, at a time of wholesale mine closures and job losses. And as those issues are being handled, the China Development Bank will finalise its term sheets, and probably syndicate out some of the debt, and Gindalbie and Ansteel will finalise the price on early haematite shipments, which is likely to be matched to the benchmark price currently being negotiated by the major miners and steel mills. The price on future sales of magnetite will also be settled, and is likely to be benchmark plus a quality premium.

It’s no exaggeration to say that the Gindalbie/Karara story is like a breath of fresh air in a very stale business environment. It is, perhaps, going too far to say events have reached an unstoppable point, but on the day the China Development Bank said it was on board, the Karara train started to leave the station. During the next five months, as the second wave of material and equipment orders are placed, bringing the total spend thus far to A$400 million, the point of no return will be reached, and Australia will be celebrating a new mine development rather than lamenting another closure.