Gindalbie Metals Ltd (ASX:
GBG)
GINDALBIE ANNOUNCES UPDATED
KARARA CONSTRUCTION COST ESTIMATE
ANSTEEL
REINFORCES SUPPORT FOR KARARA DEVELOPMENT
COST ESTIMATE INCLUDES INFRASTRUCTURE CAPABLE OF
SUPPORTING 14-36MTPA
Gindalbie
Metals Limited (ASX: GBG – “Gindalbie”) today
announced an updated Project Construction Cost estimate for the Stage 1 development
of its Karara Iron Ore Project in
Western Australia following further detailed engineering design and final
construction estimates and schedules.
The
revised Project Construction cost estimate of $1.975 billion covers all
construction costs for the Stage 1 production level of 8Mtpa of magnetite
concentrate and up to 3Mtpa of hematite, as well as effective pre-payments on
subsequent expansion phases by encompassing additional infrastructure capacity
to support production levels of 14-36Mtpa. The updated Project Construction Cost
schedule is summarised below:
2010 Karara Project Construction Cost
Estimate
|
Item
|
Cost
(A$ m)
|
Mine
Development and Magnetite Concentrator
|
905
|
Infrastructure
|
|
Rail and Port
|
275
|
Power transmission
|
242
|
Other
(incl water, camp, airstrip, roads etc)
|
263
|
Project Management, Engineering & Other
|
290
|
TOTAL CONSTRUCTION COST
|
1,975
|
The revised Project Construction Cost estimate compares directly with
the $1.648 billion capital cost estimate in the 2007 Bankable Feasibility Study
(BFS) for the hematite and magnetite phases of the Karara
Project (excluding the China Joint Venture Pellet Plant). This represents an
increase of approximately 20% or $327 million since the BFS, which was
completed in September 2007.
The
significant portion of this construction cost increase relates to design scope
and infrastructure capacity increases for an ultimately larger project, and
upgraded major plant items while the balance reflects the impact of cost
escalation, in the two and half years since the BFS was completed.
The
increase in capacity of key pieces of infrastructure and plant components during
the initial construction stage is expected to allow the Project to attain
substantial cost savings over the long term as it increases production from an
initial 8Mpta of concentrate to its long-term potential of +30Mtpa.
The
additional up-front expenditure will ensure that much of the supporting
infrastructure for the increased tonnages will already be in place, while also
allowing staged increases in concentrate output to be achieved without a need
for significant shut down. The Joint Venture’s Project Development Team has
also conducted a complete review of the project scope and refined several areas
of design, which will result in a processing plant more suitable for expansion
and with improved production efficiencies.
Some of
the key expenditure areas which have been changed or brought forward include:
- An increase in the capacity of
the high-voltage power line, from 132kv to 330kv, connecting Karara to the State grid at Eneabba.
This is sufficient to accommodate an ultimate production capacity of
36Mtpa;
- Improved rail haulage capacity of the 85km spur line connecting Karara to the existing rail line from Morawa-to-Geraldton, increasing the capacity of the
spur line to +36Mtpa. This line is being built as a dual gauge to
allow conversion from narrow to standard gauge in the future;
- An increase in capacity of the
iron ore storage facilities at the Port of Geraldton
from 100,000 tonnes to approximately 255,000 tonnes .
The storage facilities will allow an annualized capacity of 14Mtpa;
- An expansion of the water
pipeline supplying the Project to accommodate future production
capacity of up to 16Mtpa: and
- Increasing the capacity of
sections of the magnetite concentrator such as larger secondary crushers,
larger high pressure grinding rolls and adding additional thickeners.
The updated Construction Cost estimate encompasses all items of
construction capital, however in line with normal practice excludes working
capital requirements (pre and post-commissioning items) and bonding facilities
which are budgeted for separately as part of the estimated working capital
requirements.
Any shortfall that there may be in construction cost funding (depending
on the exchange rate applied to the US$1.2 billion Project Loan Facility) will
be met by funding contributions by the Project partners. Gindalbie
will assess all potential funding alternatives as required.
Working Capital Requirements
Gindalbie
has identified a future working capital funding requirement of approximately
$430 million made up of pre-commissioning items (insurance, building spares
inventory, mining pre-strip) of $184 million and Finance Facilities (bonds,
interest and working capital) of $246 million.
To finance the future working capital funding requirement, Gindalbie and AnSteel have
concluded a separate agreement whereby AnSteel will
facilitate the procurement of debt funding arrangements to cover the working
capital requirements. The partners have agreed to target a funding
structure based on a 70:30 debt to equity basis, which is the same as the
project loan structure agreed for the Karara Project.
However the Joint Venture is also mindful of changing market conditions in the
future which may result in the application of different debt-to-equity ratios.
The working capital requirements are separate from the project
construction costs and demonstrate the progress Karara
has made to consider the costs associated with commencing operations. The
bulk of working capital is not required until 2011.
Updated
Cash Operating Cost Estimates
Gindalbie is also pleased to advise that a preliminary
review of the Cash Operating Cost estimates for the Karara
Project have indicated that they are consistent with the 2007 Bankable
Feasibility Study cost of A$46/t FOB Geraldton.
“It is important to note that the key driver of the increased capital
requirement is an investment in infrastructure required to support a future
increase in production capacity at Karara,” commented
Gindalbie’s Managing Director, Mr Garret Dixon.
“This will
result in significant savings for the Karara Project
in the long term while at the same time bringing forward the substantial
additional cash flows that will be generated as production grows more quickly.
“It is
worthwhile remembering that when we did the BFS in 2007 it was based on
developing a project to produce 8Mtpa project with a 20-year mine life,” he
continued. “Since that time, Karara has grown into a world-class
project.
“The Karara Project clearly has enormous potential to produce at
much higher production rates over a very long mine life, and the Joint Venture
Partners are already planning for the next expansion stage to 16Mtpa. Longer
term, we see Karara being capable of producing more
than 30Mtpa, particularly with the development of the Oakajee Port. Karara is a financially robust project and the long term
returns to shareholders will be enhanced significantly by the decision to spend
this additional money at the initial construction stage,” he said.
Mr Dixon
said he was also pleased an initial review of Operating Costs that showed Karara was competitive in global terms. “It is also
important to look not only at operating costs, but also at overall margins,
because Karara magnetite concentrate will generate
more revenue per tonne than other iron ore products because of its high quality
68.2%Fe content and low impurities level,” he said.
“We are
also conducting an internal review to assess any impact of the Federal
Government’s Resource Rent Tax but I would like to add that again today AnSteel reconfirmed its full support for the Karara Project and its future growth potential and is
working with Gindalbie in assessing all project
funding options”
Security
Arrangements for Project Finance
The
final negotiations and documentation around the US$1.2 billion Karara Project Loan Facility continue to progress in line
with the timetable to meet first required debt drawdown by 30 June 2010.
As part of
these debt financing arrangements, AnSteel is
providing a 100% parent company guarantee to the banks, which extends to Gindalbie’s 50% responsibility to the banks. In recognition
of this, Gindalbie has agreed to grant AnSteel security over its 50% interest in Karara.
The
additional security is required in order to obtain the necessary Chinese
regulatory approval for AnSteel to provide the parent
company guarantee and allow drawdown of the Project Loan Facility.
The
shareholders in KML have entered into cross charges to secure their respective
obligations under the joint venture arrangements
The
proposed security arrangements with AnSteel require
the approval of shareholders at a meeting which is planned to be held during
June 2010.
Mr Dixon
said the proposed security arrangements were standard arrangements between
joint venture partners in such project debt arrangements and have
been subject to an Independent Expert’s Report (IER) conducted by Deloitte
Corporate Finance.
The IER will
be released with the Notice of Meeting which will be sent to all shareholders
as soon as possible.
ENDS
Released by :
|
On
behalf of:
|
Nicholas
Read
Read
Corporate
|
Mr Garret Dixon
Managing Director
|
Telephone: (+61-8) 9388 1474
|
|
Mobile:
(+61) 419 929 046
|
Gindalbie Corporate
|
|
Mr David Southam
Chief Financial Officer
Mr Michael Weir
Investor Relations Manager
Telephone: (+61-8) 9480 8700
www.gindalbie.com.au
|
About Gindalbie Metals Ltd (ASX: GBG)
Gindalbie
is well advanced towards achieving its vision of becoming a leading independent
Australian iron ore company with a diversified portfolio of magnetite and
hematite production assets, located in the Mid West region of Western
Australia.
The
initial focus of Gindalbie’s growth strategy is the Karara Iron Ore Project, located 225km east of Geraldton, where it will deliver initial production of
Direct Shipping Ore (DSO) hematite in mid-2011 to be followed by production of
high grade magnetite concentrate and blast furnace quality pellets in the
second half of 2011. Karara is being developed
through a 50:50 Joint Venture with AnSteel, one of
China’s leading steel and iron ore producers.
Gindalbie’s
longer term growth will be propelled by the exploration and development of its
extensive 1,900 sq km tenement portfolio, which includes numerous prospective
magnetite and hematite exploration targets expected to deliver a long-term
pipeline of growth opportunities.
About AnSteel
AnSteel
is currently China’s second-largest steel producer and the biggest iron ore
miner. It is the major producer in the north-east region of China, with crude
steel production of 35 million tonnes and plans to increase output to
approximately 50Mtpa. AnSteel is considered to
be one of the country’s key growth companies and has strong government support
in securing new sources of long-term iron ore supply through international
investment.
AnSteel
has developed a new integrated iron and steel making facility at Bayuquan, adjacent to the Port of Yingkou,
approximately 100km south-west of its current steel making facilities in the
city of Anshan. The new facility has the capacity to produce 6.5Mtpa of
finished steel products. Once the Karara Project is
in production, its products will be the key feed source for Bayuquan.
For
further information, visit _www.AnSteelgroup.com
About Karara
With a
multi-billion-dollar capital investment, the Karara
Project will deliver major economic benefits for the Mid West region and the State
of Western Australia, generating some 1,500 construction jobs and 600 direct
and indirect long-term jobs.
The
Project will initially produce up to 11Mtpa of iron products commencing in
2011, comprising 8Mtpa of high-grade magnetite concentrate, a value-added
product, and up to 3Mtpa of Direct Shipping Ore (DSO). Karara
has the potential to produce more than 30Mtpa over a mine life estimated at
more than 30 years.
Karara
will initially generate around A$1 billion in annual
export revenues, building to A$3 billion annually as the project grows,
equating to $40 million in Government revenues rising to $120 million annually.
Iron
products will initially be exported through Geraldton
Port, with Karara also able to commit foundation
tonnages to underpin the development of the new multi-billion dollar Oakajee
Port.
READ CORPORATE
Public Relations Corporate
Communications
T: (+61-8) 9388-1474
| F: (+61-8) 9388-1472 | E: info@readcorporate.com.au | Web: www.readcorporate.com.au