Commodities slump hits Gindalbie as Chinese investor gets nervous

Iron ore junior Gindalbie Metals has seen its market value cut in half after Chinese steelmaker Ansteel – majority owner of its Karara mine in Western Australia – said it could pull out of the venture.

Karara Mining Limited (KML) is a ~7mtpa magnetite concentrate (+65% Fe) project in central WA, which is 52.16% owned by Ansteel Group, one of China’s biggest steelmakers, and 47.84% owned by the ASX-listed Gindalbie Metals.

KML boss Zhang Zhao Yuan reportedly told staff last week that in the face of the ongoing iron ore price slump, Ansteel had hired an adviser, with a view to potentially re-consider investment in the mine.

Gindalbie entered a trading halt in response to the news last Friday. That halt ended with an announcement on Tuesday morning, January 12.

“In the memorandum to [Karara] staff, which primarily focuses on strengthening management practices and reporting, as well as continued cost cutting efforts across key operational areas, the CEO of KML also states that Ansteel is unable to continue to provide funding support to KML due to the economic and industry downturn,” Gindalbie chairman Keith Jones said.

“As part of efficiency and cost reduction measures, Ansteel has engaged a third party to review the viability of operations as well as potential options for KML, it is our understanding that this review is ongoing.

“A decision by Ansteel to withdraw funding support could lead to claims under various operating and financing guarantees against Gindalbie, which if successful could cast doubt on Gindalbie’s ability to continue as a going concern,” Jones warned.

“Gindalbie has requested a formal notification from Ansteel on their decision regarding ongoing funding support for the Karara project and has yet to receive a response.”

Gindalbie shares dropped from 2.3c to 0.9c on Tuesday – a change of more than 60%. The company finished the day with a market capitalisation of just $13m.

Roughly 1000 workers are employed at the Karara mine. More jobs could potentially be under threat if the mine shuts down, with Aurizon responsible for hauling iron ore to Geraldton Port, where it is loaded for export at the Karara Export Terminal.

Karara shipped 1.82mt of magnetite concentrate in the September quarter of 2015. In the June quarter it shipped 1.69mt, and in the March quarter it shipped 1.45mt.