Gindalbie Metals has suspended trading of its shares ahead of the likely announcement of a substantial writedown in the value of its troubled Karara magnetite mine.
The company said yesterday it had commissioned an independent review of the carrying value of the asset.
Gindalbie valued its then-50 per cent holding in Karara, a joint venture with China's Ansteel, at $550 million in its January half-year report. Ansteel moved to majority ownership of the project in March and has the right to dilute Gindalbie down to a stake as slim as 38 per cent by converting further debt to equity.
And Karara still faces major ongoing issues.
Gindalbie's quarterly review yesterday said the mine was still producing magnetite concentrate at less than half its 8 million tonne-a-year capacity, at a grade 2.6 per cent below its 68 per cent target.
The company gave no quarterly production costs for Karara but further cash injections into the project could be needed for some time. Gindalbie said it was still not in a position to "provide accurate production guidance, or forecast when the project will achieve positive cash flow".
Additional capital may also be needed for engineering works, with an ongoing review of problems caused by a harder-than-expected orebody still not complete.
Ansteel's first debt-to-equity conversion was conducted at $4.31 for each Karara share.
The second tranche will be conducted at $3.02 a share, making it likely further cash injections would devalue Gindalbie's stake.
At its last trading price of 5.8Â¢, down 0.1Â¢ for the day, Gindalbie was valued at $86.7 million.