Ansteel to take 100% production tonnage from Karara

The execution of this landmark agreement between the joint venture company Karara Mining Limited 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 8Mtpa, is scheduled to be commissioned in late 2011, however 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.
Based on the 2009 benchmark iron ore fines price and stage one production rate, the offtake 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-recognised Pilbara fines price plus a quality adjustment to reflect the high grade (68.2 per cent 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. 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.
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 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. 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.
“We are pleased to announce the completion of these long-term off-take contracts, which underpin the production tonnage from the Karara Project,” said Gindalbie’s managing director, Garret Dixon.
“The pricing structure embedded in these contacts reflects the high quality and niche market position of magnetite concentrates in the global iron ore market,” he added.
“Because of the very high grade and low impurities of the Karara magnetite concentrate, it is expected to secure a position as a premium iron product which delivers cost effectiveness to the steel mills in the steel making process.
He said the structure of the contract also underpins the financial strength of the Karara project. Gindalbie shareholders benefit from Karara receiving the full market value of the iron ore products. Ansteel, as a joint venture partner, pays market price, but it will share in the joint venture profits.
“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. In addition, we would not be surprised to see a further increase next year when Karara begins production,” said Dixon.