Gindalbie Metals has warned its Karara Mining subsidiary could be in breach of debt covenants by the end of March.
The company is relying on China's Ansteel to arrange a promised $300 million debt line by the end of April to avoid the possibility of lenders calling its debts.
Gindalbie yesterday released its half-year report, which outlined the depth of its debt woes. Karara Mining, half owned by steelmaker Ansteel, owed almost $2.5 billion at the end of December. It had current liabilities of more than $832 million, including $511.3 million in trade payables and $322 million owed under its $1.7 billion senior debt facility with Chinese banks, with payments due in May and November.
The company said it had not met financial coverage ratios in its senior debt facility at the end of December and was unlikely to be compliant by the end of March. If not waived or rectified within 30 days, that would breach convenants and theoretically trigger a move by lenders to seize control of Karara, the company said.
Gindalbie managing director Dale Harris said he was confident a $300 million lifeline from Ansteel - which is owed almost $430 million, including $213 million worth of pre-paid ore - would be finalised by the end of April.
"We're working with the banking syndicate to put in place a funding solution that will support us through the course of this year as we continue with the ramp-up," he said. Mr Harris said Karara was on track to run at 75 per cent of its 8 million tonne-a-year production capacity by the end of the month. It would still likely need between $150 million and $200 million in new capital to re-engineer its processing plant to help it reach nameplate production.
Mr Harris said magnetite concentrate from Karara was winning good premiums over the benchmark spot price for 65 per cent iron ore, though the com- pany was still losing money on each tonne shipped. It cost Karara $318.7 million to ship 1.6mt of during the half, generating revenue of $200.6 million.
Gindalbie shares closed down 0.1Â¢ yesterday to 9.1Â¢.