AAP reported that magnetite iron ore exporter Grange Resources expects to soon release a new capital expenditure estimate for its Southdown project near Albany that could be about USD 2.5 billion.
Grange produces iron ore pellets at its wholly owned Savage River operations in Tasmania. In 2008, it put a USD 1.68 billion price tag on Southdown, but the project has since increased in size.
Southdown will include a pellet plant in Malaysia, where the company and 30% JV partner, Japan's Sojitz Corporation, will enjoy a 15 year tax free holiday.
Mr Russell Clark CEO of Grange said that the company was reviewing a pre feasibility study for the Southdown project, with a report to the market expected in April 2011.
Mr Clark said that his rough estimate of the revised capital cost of USD 2.5 billion was based on costs for other major WA iron ore projects. He added that "I'm saying that not pulling any numbers from the PFS, it's just based on what similar projects are costing."
He said that, with a 70% stake in the project, Grange's share of the cost could be about USD 1.75 billion. He added that "We believe we can get a debt to equity split of 70:30. That would mean that our equity component is USD 400 million to USD 500 million. There may be a need to have a small raising."
He said that the company had started talks with Chinese banks for the debt, with assistance from its 67% shareholder, China's fourth largest steel maker Shagang International Holdings. He added that "We've had some introductions there in January 2011. Really, we need to get to a point post PFS where we've got something more palpable that we can take to the banks so we can show what the financials look like, where we are with permitting and reserves. Once you get to that point, the payment terms may be more generous than they are here in the west. In other words, the length of time to pay back would be longer and the amount of debt available is potentially better."
Grange had no debt and USD 92 million in cash at the end of December, with strong cash flows from Savage River.
Mr Clark said that Grange had started to get labeled as wannabees after delays with Southdown, where mining was originally expected to start in 2012 but is now slated for 2014. He added that "But I think we've now moved into a different space where we can demonstrate quarter on quarter what we can do at Savage River. We can demonstrate the cash generation and what we're doing at Southdown, and the expertise that we've got at Savage that we can use at Southdown, which some of our peer companies just don't have."
Assuming the Southdown PFS meets expectations, Mr Clark said that Grange would this year spend about AUD 100 million on a definitive feasibility study.
(Sourced from AAP)
