Gindalbie Metals Limited has joined Fortescue Metals Group Limited in calling for magnetite iron ore to be excluded from the federal government's proposed mineral resources rent tax.

The Perth based company said in a statement that it had begun consultations with government officials in an attempt to have magnetite exempted from the MRRT.

Iron ore and coal are the only two commodities that will be subject to the proposed new tax, which was welcomed by most mining companies earlier this month as a big improvement on its broader, heftier predecessor. However, the MRRT makes no distinction between hematite iron ore, which does not require processing and magnetite iron ore, which requires intensive processing.

Gindalbie's near USD 2 billion Karara project in Western Australia's mid west region will mainly yield magnetite from the H2 of 2011 although cash flow will come from a small amount of hematite production from mid next year.

Gindalbie believed that the Karara project should be exempt from MRRT because, as a magnetite project, a large amount of value added processing is required to produce a premium iron ore concentrate. In this regard, Karara is more comparable to a nickel or bauxite project, both of which have been exempt from the MRRT.

Gindalbie said that if magnetite remained subject to the MRRT, the effect of the new tax on Karara would be minimal because of the low value of magnetite ore prior to processing. This presumes the federal government will adhere to its pledge to apply the MRRT to the value of raw resources, not processed mineral products.

With magnetite being costly to produce, the mainstay of Western Australia's Pilbara miners has for several decades been hematite.

Australia's magnetite is increasingly being targeted by Chinese firms such as CITIC Pacific Mining, or Asian backed domestic firms such as Grange Resources Limited amid a growing recognition that Chinese steel mills are highly experienced in processing magnetite. The mills welcome these new sources of iron ore as an alternative to hematite mined by majors BHP Billiton Limited and Rio Tinto Limited.

Mr Andrew Forrest CEO of Fortescue said recently that the company, which had to date only mined hematite, may sell controlling stakes in its magnetite projects in WA to foreign steel mills. It is already partnering with China's Baosteel at the Glacier Valley magnetite project in WA.

He said that work at these projects appears to have ground to a halt as Fortescue struggles to debt fund its core hematite project expansions.

(Sourced from money.ninemsn.com)