China’s Ansteel to take control of Australia iron ore mine

China’s state-owned Anshan Iron and Steel Group Corp has agreed to take a majority stake in the Karara iron ore project in Western Australia, shoring up joint-venture partner Gindalbie Metals after setbacks at the project.

The deal will eliminate the need for Gindalbie to pursue an impending equity raising and allows it hold on to A$35 million (HK$256.4 million) in cash at a time when mining companies are struggling to retain capital. The Karara project has experienced delays in the ramp-up of mining activity and seen shipment rates fall below internal forecasts.

Shares of Gindalbie jumped as much as 21 per cent to 11.6 Australian cents after Gindalbie announced the agreement on Tuesday. Gindalbie shares had traded as high as 35 Australian cents in early January but have fallen since then on concerns that an equity raising would be highly dilutive.

“The advantage of this arrangement is it avoids the need for us to call on shareholders or the market for more funding for Karara’s ramp-up and effectively marks the beginning of a new chapter for Gindalbie,” Gindalbie Managing Director Tim Netscher said in a statement.

Under the agreement, Ansteel will receive an option to lift its stake in the project’s 50-50 operator, Karara Mining Ltd, to as much as 52.16 per cent, after providing bridging loans over the next 12 months until new longer-term loans can be secured with China Development Bank or other lenders, Gindalbie said.

Gindalbie’s stake would fall to 47.84 per cent.

The deal requires approvals from foreign investment regulators in Australia and China.