Bank of China contributes $24 million USD to the $72 million USD tranche of the $336 million USD syndicated loan for the Karara Iron Ore Project (Linked to Record ID#96966, #96968, and #96969)

Project narrative

On June 21, 2010, in the presence of then-Chinese Vice President Xi Jinping and Prime Minister of Australia Kevin Rudd, a syndicate of four banks — the Liaoning Branch of Agricultural Bank of China (ABC), the Liaoning Branch of Bank of China (BOC), the Liaoning Branch of China Development Bank (CDB), and the Liaoning Branch of Industrial and Commercial Bank of China (ICBC) — signed a $1.2 billion USD ($1.33267 billion AUD) senior syndicated debt facility agreement with Karara Mining Limited (KML or 卡拉拉矿业公司 or 卡拉拉矿业有限公司) — a special purpose vehicle (SPV) and joint venture of Australian mining company Gindalbie Metals Limited (50% equity stake) and Chinese state-owned steel-maker and iron ore miner Anshan Iron & Steel Group Corporation (Ansteel) (50% equity stake) — for the Karara Iron Ore Project (KIOP) in Western Australia. This loan carried a maturity period of 12 years, a grace period of three years, and a maturity date of August 18, 2022. This loan carried an interest rate of 6-month LIBOR plus 200 basis points (bps); the interest was payable half yearly, with repayments beginning in May 2013. KML issued a charger over all of its assets in favor of the lenders as security. Gindalbie and Angang Group Investment (Australia) Pty Ltd severally guaranteed KML's obligations under the facility until project completion. Ansteel issued a sponsor (parent company) guarantee in which it guaranteed Gindalbie's and Angang's payment obligations under that guarantee until project completion. Gindalbie provided a First Ranking Share Mortgage in favor of the lenders over its shares in KML. Gindalbie Metals Limited also provided a Second Ranking Share Mortgage to its joint venture partner Ansteel in respect of 50% of the liability Ansteel could incur under a Sponsor Guarantee Ansteel provided to the lenders, to expire once the undertaking and guarantee given by Gindalbie to the lenders ceases at project completion. Gindalbie Metals Limited’s liability under this commitment was unlimited, although the estimated maximum potential liability as of June 30, 2013 was $892.5 million USD. Angang Group Investment provided a limited recourse first ranking share mortgage in favor of the lenders over all its shares in KML. Gindalbie granted a featherweight charge, to only become operative if default occurred and an administrator was appointed over it, allowing the lenders to appoint a receiver and enforce their rights under the share mortgage. Gindalbie and Angang also granted a cross charge to each other over their shares in KML to secure their obligations under the joint development agreement and to keep the undertakings and guarantees confined to each party's proportional interest in KML. Under the facility, KML was required to comply with cover ratios, comprising its debt equity ratio, its debt service cover ratio (DSCR), and its life of loan cover ratio (LCCR). KML did not comply with the DSCR on December 31, 2013 and March 31, 2014 and received a waiver of the non-compliance from the syndicate's facility agent; it was also expected not to comply with the LCCR on June 30, 2014, September 30, 2014, and December 31, 2014, and with the DSCR on September 30, 2014 and December 31, 2014. ABC contributed $200 million USD ($222.11 million AUD), BOC contributed $400 million USD ($444.22 million AUD), CDB contributed $400 million USD, and ICBC contributed $200 million USD to the loan. Record ID#96951 captures ABC's contribution. Record ID#96952 captures BOC's contribution. Record ID#96953 captures CDB's contribution. Record ID#96954 captures ICBC's contribution. The first drawdown under the facility was made on or just before August 16, 2010. As of June 30, 2010, the entire $1.2 billion USD facility had been fully drawn. In April 2011, the Chinese banking syndicate signed a framework agreement with KML for the provision of a $336 million USD working capital facility to finance non-construction related working capital and expenses to be incurred prior to the emergence of KML's positive cash flows. Then, on February 13, 2012, financial close was reached on an amendment agreement of the $1.2 billion USD debt facility in which ABC, BOC, CDB, and ICBC provided $336 million USD ($312.85 million AUD) in additional debt financing to KML for the Karara Iron Ore Project, up-sizing the $1.2 billion USD debt facility to $1.536 billion USD. Specifically, the up-sizing was divided into two tranches: a $264 million USD ($245.81 million AUD) term loan tranche with a maturity period of 10 years and an interest rate based on a floating rate plus a margin of 400 bps and a $72 million USD ($67.04 million AUD) with a maturity period of three years and an interest rate based on a floating rate plus a margin of 350 bps. ABC contributed $44 million USD ($40.97 million AUD), BOC contributed $88 million USD ($81.94 million AUD), CDB contributed $88 million USD, and ICBC contributed $44 million USD to the $264 million USD tranche. Record ID#96962 captures ABC's contribution. Record ID#96963 captures BOC's contribution. Record ID#96964 captures CDB's contribution. Record ID#96965 captures ICBC's contribution. ABC contributed $12 million USD ($11.17 million AUD), BOC contributed $24 million USD ($22.35 million AUD), CDB contributed $24 million USD, and ICBC contributed $12 million USD to the $72 million USD tranche. Record ID#96966 captures ABC's contribution. Record ID#96967 captures BOC's contribution. Record ID#96968 captures CDB's contribution. Record ID#96969 captures ICBC's contribution. As of June 30, 2012, $280 million USD of this facility had been drawn down. As of June 30, 2013, this entire facility had been drawn down. Then, on August 20, 2012, CDB issued a conditional term loan facility offer to KML for the provision of a $250 million USD project debt facility to fund construction costs for the Karara Iron Ore Project. The offered terms and conditions, including the security arrangements, were substantially similar to the existing facility. This offer was to cover an expected funding shortfall relating to the conversion of the U.S. dollar-denominated facility to Australian dollars. Then, on November 12, 2012, CDB signed a $250 million USD loan agreement with KML. This loan carried a maturity period of seven years and six months (7.5 years). This loan, up-sized the $1.536 billion USD facility to $1.786 billion USD. As of June 30, 2013, this entire facility had been drawn down. Record ID#96970 captures CDB's $250 million USD loan. Then, on May 18, 2015, a syndicate of three banks — ABC, BOC, and CDB — entered into a $1,481,320,000 USD syndicated loan facility agreement with KML — which was now jointly owned by Gindalbie Metals Limited (47.84% equity stake) and Angang Group Investment (Australia) Pty Ltd (a wholly owned subsidiary of Anshan Iron & Steel Group Corporation (Ansteel)) (52.16% equity stake) — for the Karara Iron Ore 2015 Refinancing Project. Financial close was reached on May 19, 2015 This loan carried a maturity date falling in 2030 (approximately 15 years; from the original loan, effectively a 10-year maturity extension), a 'significant repayment grace period', and an interest rate based on LIBOR plus a margin of 300 bps. The proceeds of this loan were to be used by the borrower to refinance the three existing loan facilities totaling $1.536 billion USD for the Karara Iron Ore Project. Gindalbie and Ansteel each provided shareholder guarantees, to expire when the debt was repaid, and a first-ranking share mortgage on all of their owned shares to KML to the lenders as security for their corporate guarantees. Ansteel provided a sponsor guarantee for the loan until all debt was repaid. Gindalbie provided a second ranking security (amended share mortgage) over its KML shares to Ansteel to indemnify Ansteel for any losses if Gindalbie defaulted under its guarantee to the lenders. ABC contributed $212.72 million USD, BOC contributed $443.27 million USD, and CDB contributed $825.34 million USD to the loan syndicate. Record ID#50040 captures ABC's contribution. Record ID#96978 captures BOC's contribution. Record ID#96979 captures CDB's contribution. The Karara Iron Ore Project (KIOP) sought to construct and operate a magnetite mining and processing operation located in the Mid-West region of Western Australia, located approximately 225 kilometers east-southeast of Geraldton and 320 kilometers north-northeast of Perth. It consisted of an open cut mining pit, a beneficiation processing plant, a waste rock dump (WRD), tailings storage facilities (TSF), rail loading facilities, accommodation facilities, an airstrip, and a Linear Infrastructure Corridor (LIC) containing a water pipeline and access road. Stage 1 of KIOP sought was to be construct infrastructure to produce 3 million tons per annum of hematite and 8 millions tons per annum of magnetite concentrate, to be sold by Ansteel for its 6.5 million tons per annum Bayuquan steel mill in China. The Karara mine contained approximately 1.4 billion metric tons of recoverable reserves and over two billion tons of estimated reserves, with an estimated 60-year lifespan at an initial production rate of 8 million tons per annum. In addition to the mine, the KIOP consisted of the following supporting infrastructure: a 80-kilometer Karara rail spur, connecting KIOP to the common-user rail system at Tilley Siding, near Morawa; a 180-kilometer long 330 kV powerline from Eneabba to Karara, connecting the project site to Western Australia's South West power grid; a 145-kilometer water pipeline, supplying process water from a bore field near Mingenew to Karara; and the Karara Export Terminal (KET) at the Port of Geraldton, with a capacity of 16 million tons per annum of magnetite concentrate or hematite direct shipping, consisting of a dedicated fourth railway line inside the port, a twin-car rotary dumper (train unloader), a 297-meter long storage facility with a 255,000 tons capacity, a dedicated berth, Berth 7, capable of accommodating Panamax vessels; and a 5,000 ton-per-hour ship-loader. Stage 1 of KIOP had an estimated cost of $1.975 billion USD as of June 30, 2010, compared to the $1.648 billion USD capital cost estimate from the 2007 feasibility study. By April 2010, Gindalbie and Ansteel had already contributed $534 million AUD in equity to KML for the project. Downer EDI won a six-year $570 million USD mining contract in February 2012 for the construction of mine infrastructure and drilling, blasting, loading and waste, ore haulage, and services and a $665 million USD $665m Electrical & Instrumentation (E&I) contract for the processing facility of the mine. In January 2012, Bis Industries won a $23 million USD contract to construct the mine's tailings management facility. Metso won a €3.8 million EUR contract to supply project mining equipment. Outotec was contract for the design, supply, and installation of the flotation circuit and all filtration technology. Doric Group won a $70 million AD contract for the design, supply, and the installation of the permanent worker accommodation camp in December 2009; it sub-contracted to Vekta. WorleyParsons was contracted for project management and procurement and construction management. FL Smidth was responsible for the supply of the mobile stacking system for the TSF. Materials Management Group provided its TraceBASE system to assist in fabrication process. Gindalbie and Ansteel originally signed a joint venture development in 2007 in the presence of Chinese President Hu Jintao. A feasibility study showing the economic and technical viability of the mine was completed in September 2007. The Government of Western Australia issued environmental approval on September 2009. The ground-breaking ceremony and the start of construction began on November 2009. The Karara Export Terminal officially opened on September 18, 2012. The project first produced magnetite concentrate in November 2012. The project was officially opened in April 2013. The project first produced 68% Fe concentrate were later in August 2013. The KIOP was constructed at the peak of the mining boom; it went over budget by more than $1 billion AUD. Then, during the ramping up of production at Karara, global iron ore prices collapsed. With high operating costs, above $100 USD per ton, meant that to keep the project alive, the sponsors had to borrower additional debt. Gindalbie ceased contributing to the project's sustaining capital or operating costs for years. In 2014, Gindalbie wrote down the value of its 47.84% stake in the project to zero. When iron ore prices rose above $100 USD per ton, the project, while holding a positive cashflow, had $4.5 billion AUD of debt to repay, requiring between 10 to 20 years to repay. The West Australian called the Karara project a '15-year disaster' for Gindalbie Metals. Gindalbie sold its remaining stake in KML to Ansteel in 2019.