China's Ansteel weighs future of $2 billion Australian iron ore mine

12 January 2016

China's Angang Steel Co Ltd is reviewing the future of the A$3 billion ($2 billion) Karara iron ore mine, which could become the latest victim of a global slump in iron ore prices.

Ansteel's minority partner Gindalbie Metals Ltd said on Tuesday the Chinese firm had hired a third party to look at the viability of the struggling project. Gindalbie warned it may go under if Ansteel decided not to inject more funds.

The mine is one of five magnetite projects that Chinese firms poured billions into at the height of the resources boom as China's steel makers sought to ease their dependence on global iron ore giants, Brazil's Vale and Australia's Rio Tinto and BHP Billiton.

Iron ore prices have plunged nearly 80 percent from their peak in 2011 as Chinese demand has slowed while major producers have expanded output creating a surplus, driving all but the lowest cost producers into the red.

Magnetite is particularly costly to produce as the ore has to be heavily processed to produce high quality concentrate.

Doubts arose last week about the future of the mine after the chief executive of Karara wrote a memo to staff saying Ansteel was unable to continue to provide funding support to Karara Mining Ltd (KML) due to the economic and industry downturn.

"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," Gindalbie said in a statement to the Australian stock exchange on Tuesday.

Gindalbie said it has asked Ansteel to notify it about its decision on funding Karara and has yet to receive a response.

"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," Gindalbie said.

Gindalbie's shares slumped 62 percent to 0.8 Australian cents, valuing the company at just A$12 million ($8 million), after the announcement.