Narrative
Full Description
Project narrative
In September 2013, Ansteel Group Finance Company — a wholly owned subsidiary of Chinese state-owned steel-maker and iron ore miner Anshan Iron & Steel Group Corporation (Ansteel) — signed an $100 million AUD pre-export finance (PXF) facility and an RMB 170 million pre-export finance (PXF) facility ($100 million USD combined) 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's working capital needs. Specifically, the proceeds of this facility were to be used by KML to meet additional working capital requirements for Karara amidst delays in the ramp-up of production. This PXF carried a fixed interest rate of 6% and was payable quarterly. The PXF was for delivery of magnetite concentrate by KML to one of Ansteel's subsidiaries. Record ID#96982 captures the $100 million AUD PxF. Record ID#96983 captures the RMB 170 million PxF. Ansteel had arranged a total of $230 million USD in additional short-term funding to KML in September 2013, including the $100 million USD in prepaid sales agreements for delivery of magnetite concentrate and a $130 million USD Bank of China term loan facility. One of the conditions of this arrangement was that Ansteel had the option to have KML's obligations under the prepaid sales agreement and the $130 million USD facility be repaid using proceeds received by KML or through the issue of new KML equity share capital to Ansteel at $3.02 AUD per share, If exercised, KML could issue 80,848,132 new shares, giving Ansteel another 9.6% equity stake in KML and decreasing Gindalbie's equity stake by the same amount. As of December 31, 2018, funds under this facility were still outstanding for KML. The Karara Iron Ore Project (KIOP), which 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. 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. By September 2013, Karara had been experiencing delays in ramping up production, with issues with its tailings management systems creating a bottleneck and necessitating engineering solutions and necessitating short-term funding.
Staff comments
1. A pre-export finance (PXF) facility is an arrangement in which a commodity producer gets up-front cash from a customer in return for a promise to repay the customer with that commodity (possibly at a discount) in the future. PXF funds may be advanced by a lender or syndicate of lenders to a commodity producer to assist the company in meeting either its working capital needs (for example, to cover the purchase of raw materials and costs associated with processing, storage and transport) or its capital investment needs (for example, investment in plant and machinery and other elements of infrastructure). PXF facilities are usually secured by (1) an assignment of rights by the producer under an ‘offtake contract’ (i.e., a sale and purchase contract between the producer and a buyer of that producer of goods or commodities), and (2) a collection account charge over a bank account into which proceeds due to the producer from the buyer of the goods or commodities under the offtake contract are credited. There are two key documents in prepayment finance transactions: a contract providing for the advance payment by the offtaker to the producer for the purchase of goods/commodities (the 'Prepayment Contract'), and a loan agreement between a lender and the offtaker (the 'Offtaker Loan Agreement') under which the advance payment is financed. 2. In March 2014, Ansteel converted two shareholder loans into shares in KML, leading to a new breakdown in the ownership of KML as follows: Gindalbie (47.84% equity stake) and Ansteel (52.16% equity stake) (see pg.6 of "Gindalbie Metals Limited Annual Report 2014"). Then, in 2019, Ansteel Group acquired Gindalbie Metals Limited for $39 million. It thereby gained a 100% ownership stake in KML (see "Norton Rose Fulbright advises Ansteel Group on $39m acquisition of Gindalbie Metals Limited"). 4. Angang Group Hong Kong (Holdings) Limited, a subsidiary of Ansteel, was one of the substantial shareholders of Gindalbie Metals Limited, holding a 35.887% stake by June 30, 2012 (see pg.24 of "Gindalbie Metals Limited Annual Report 2012").