On March 30, Australian miner Gindalbie Metals Ltd announced the finalization of a long term off-take contract with its joint venture partner, Ansteel, one of China's largest iron ore miners and steelmakers, covering the life-of-mine production from the Karara iron ore project in Western Australia.
The execution of this agreement between the joint venture company Karara Mining Limited (KML) and Angang Group International Trade Corporation, valued at more than US$65 billion over the life of the project, marks another key milestone for the Karara project, where construction commenced late last year.
The contract covers the total magnetite concentrate production from the Karara operations. Stage one production, based on a rate of eight million metric tons per year, is scheduled to be commissioned in late 2011; however, Karara hosts a world-class iron ore resource with the potential to produce more than 30 million metric tons per year for a life of 30 years. As part of stage one construction, the partners are already building parts of the infrastructure (rail, port, power, water) to support much higher production levels in anticipation of future expansions.
Based on the 2009 benchmark iron ore fines price and the stage one production rate, the off-take agreement is worth approximately US$580 million a year increasing to more than US$2.1 billion a year at the project's potential production rate.
The pricing structure for Karara magnetite concentrate will be based on the internationally-recognized Pilbara fines price plus a quality adjustment to reflect the high grade (68.2 percent Fe) and low impurity specifications of the Karara iron product.
The first shipment under the new magnetite off-take agreement is expected to occur in the second half of 2011 with commissioning of the Karara project.
The concentrate will be shipped to China and is currently earmarked for the specially-designed and recently completed Bayuquan integrated iron and steel-making facility, located adjacent to the Port of Yingkou in northern China. This facility, which is located 100 km southwest of Ansteel's current steel-making facilities in the city of Anshan, is a key component of its long-term growth plans. Bayuquan is located on a port specifically for imported feed, in recognition of issues with the long-term supply of cost effective raw materials from Ansteel's own Chinese iron ore operations.