Steelmaking giant Ansteel has ended months of uncertainty over the future of the loss-making Karara magnetite operation, backing a new $US200 million ($278 million) lifeline to the struggling exporter.
The move will be welcome relief for Karara staff and contractors, who were told in January its majority Chinese owner was unwilling to continue to bankroll the operation’s losses.
Gindalbie Metals, which owns 47.8 per cent of the 8 million tonne-a-year Mid West magnetite operation, told investors late yesterday Karara Mining had won a $US200 million working capital loan package from the Shanghai Pudong Development Bank.
That is likely to provide enough cash to keep Karara running for at least the next year as the company’s management seeks to cut costs to get ahead of iron ore prices.
The loan is understood to have been backed by an Ansteel guarantee, indicating the Chinese steelmaker has backed away from threats to walk away from the multibillion-dollar project.
Ansteel’s commitment to ongoing support is also believed to be a key condition of a cost-saving deal still in negotiation with Karara’s contractors and suppliers, including Brookfield Rail.
Brookfield told investors earlier this month it had reached in-principle agreement to cut Karara’s rail access costs for up to three years, with costs falling with the iron ore price. In exchange, its 15-year take-or-pay agreement would be extended for five years.
That agreement is still to be finalised, and other conditions of the deal are believed to still be outstanding.
Among those is likely to be an agreement to extend the term of a $300 million bank guarantee held over the contract. – The West Australian