Gindalbie Firms Up Its China Iron Ore Deal

  And small iron ore hopeful, Gindalbie Metals says it has sealed & #160;a possible & #36;US65 billion ( & #36;70.8 billion) iron ore sales contract with its Chinese joint venture partner.Gindalbie said yesterday & #160;its sales agreement & #160;was with Angang Group International Trade Corporation (or Ansteel, China's second biggest listed steel group) is for life-of-mine production from their Karara magnetite project in Western Australia's midwest region.Shares in Gindalbie closed up 8c or more than 7%, at & #36;1.18 yesterday in the wake of the announcement.Perth-based Gindalbie says Karara has the potential to produce more than 30 million tonnes per annum for 30 years.But production will start at a more modest 8 million tonnes a year in around two and a half year's time.And the revenue will be a more modest amount as well.Based on the 2009 Benchmark iron ore fines price and stage one production rate, the offtake agreement is worth approximately US & #36;580 million a year increasing to more than US & #36;2.1 billion a year at the project's potential production rate.Those estimates are at 2009-10 contract prices; the new pricing arrangements won by BHP Billion and Vale would increase the value of the exports, if Gindalbie can win changes from its Chinese partner.First shipments to China under the & #160;agreement are & #160;expected to start in the back of 2011. Construction commenced at the project late last year. & quot;Karara hosts a world-class iron ore resource with the potential to produce more than 30Mtpa 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, & quot; Gindalbie said in yesterday's statement. & quot;Prior to then, the offtake agreement remains conditional upon the completion of the remaining conditions in the Karara Incorporated Joint Venture Agreement as previously announced to the market, & quot; the company said.Gindalbie managing director Garret Dixon said Ansteel was paying full market price for the iron ore. & quot;The pricing structure embedded in these contracts reflects the high quality and niche market position of magnetite concentrate in the global iron ore market, & quot; Mr Dixon said. & quot;For Ansteel, Karara becomes a strategic, long term, cost effective source of iron ore for their expanding steel making facilities. & quot;At the same time, it is apparent that iron ore demand is strong and it looks like there will be a healthy increase in iron ore prices this year. & quot;In addition, we would not be surprised to see a further increase next year when Karara begins production.' & quot;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. & quot;This facility, which is located 100km south-west of Ansteel's current steel-making facilities in the city of Anshan, is a key component of its long-term growth plans. & quot;Bayuquan is located on a port & #160; 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. & quot; & #160;  

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