MARKETS SPECTATOR: Gindalbie's protest

Gindalbie Metals managing director Tim Netscher confesses he is mystified.

Netscher is somewhat confused with analyst perceptions that iron ore production targets from new projects by BHP Billiton, Rio Tinto, Fortescue and his company will be met on time. He also finds it difficult to understand why many analysts of China’s economy say the world’s second-biggest economy is slowing so fast to the extent its demand for iron ore from Australia will weaken causing the spot price for iron ore to fall below a long established floor of between $US110 to $US120 a tonne.

“I don’t believe the supply picture is as bleak as many analysts would like us to believe,” Netscher told Market Spectator. Analysts are forecasting “all projects will come on line flawlessly, and on time. That has never happened in my experience”.

Netscher acknowledges there is “stress” among Chinese steel makers as there is “excess capacity”. But those who forecast steelmakers will cut back production when the world economy is improving may have misjudged the market as they may be misjudging the strength of China’s economy, he says.

“People think 7.5 per cent economic growth in China is a disaster,” says Netscher. “But they are not accounting for the fact that economic growth now is from a larger economic base than previous years”.

In terms of iron ore production, the highest cost producers are in China, not Australia, he says. Chinese iron ore producers will shutter production first if spot iron ore prices falls much below $US110 a tonne.

In Gindalbie’s case its iron ore from the Karara project in Western Australia is of higher quality than other producers. Karara iron ore contains 68 per cent magnetite iron compared with the spot market which prices 62 per cent iron content.

Netscher says the Karara project is able to charge about 20 per cent higher prices for its iron ore than the spot price out of the north-east Chinese port city of Tianjin. The Tianjin spot price yesterday was $US110.90 a tonne, unchanged from Friday. Shipping costs erode the price Karara can get for its iron ore by 5 per cent, says Netscher. Karara’s production costs per tonne are between $US72 to $US76 a tonne.

The Karara project is located about 400 kilometers north-east of Perth. Karara Mining was a 50:50 joint venture between Gindalbie and Anstell. Today Gindalbie said Ansteel may increase its stake in the project to 52.16 per cent by converting some existing loans into equity.

Ansteel has agreed to provide all bridging loan finance for Karara. China Development Bank will provide long-term working capital financing to Karara Mining.

Today Gindalbie Metals shares rose 2 cents, or 21 per cent, to 11.5 cents. The benchmark S&P/ASX200 Index added 19.397, or 0.4 per cent, to 4,757.10.