By Rachel Seeley
SHARES in WA iron ore company Gindalbie Metals plummeted by close to 60 per cent following a mid-January announcement casting doubt on the company’s ability to continue operating.
The uncertainty arose from an alleged staff announcement by Karara Mining, in which Gindalbie holds a minor interest, relating to the $2.5 billion Karara iron ore project. The WA project is held in joint venture between Gindalbie and Chinese steel producer Ansteel, and managed by Karara Mining.
Gindalbie chairman Keith Jones responded to a memorandum allegedly circulated by Karara Mining chief executive Zhang Zhao Yuan advising that Ansteel would be unable to continue providing funding support to the Karara project.
“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 Karara Mining, it is our understanding that this review is ongoing,” Mr Jones said.
“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 had requested formal notification from Ansteel relating to any changes to their funding support for the Karara project but had yet to receive a response.
The Karara project received 12 months of royalty relief from the state government however in late 2015 Mr Jones spoke of continued tough times.
“The resources sector has faced another tough year with the prices for commodities forcing adjustments across the industry with companies modifying operations to remain profitable and reviewing capital spending,” he said.
“Karara has significantly increased production and at times operated in excess of the design capacity, however the sale price of iron ore has resulted in continuing losses on the project.”