Grange Resources has conceded it will struggle to fund its share of the planned Southdown magnetite development near Albany after putting “at least” a 30 per cent project stake on the block.
The company also last week confirmed it was seeking a temporary royalty exemption from the State Government to help the $2.9 billion project get off the ground.
Describing Grange’s 70 per cent stake as “too big”, managing director Russell Clark signalled the miner would consider becoming a minority partner in the mine, which is intended to be four times the size of its Savage River operation in Tasmania.
It is unclear whether Grange’s controlling Chinese shareholder or its Japanese joint venture partner will put their hands up for a bigger slice of Southdown.
Japan’s Kobe Steel, one of the world’s biggest steel mills, owns a collective 30 per cent of Southdown with Sojitz Corp and has already committed to buying 15 per cent of forecast production.
China’s Shagang International Holdings owns 66 per cent of Grange.
“Our debt advisers are suggesting that 60 per cent debt is realistic,” Mr Clark said.
“So with 70 per cent (of the project) that would make our equity requirement more than $800 million. It’s just a way of us managing our equity and reducing our risk.”
Announcing the appointment of Deutsche Bank as corporate adviser last week, Mr Clark said while there was no official cap on how much of the project Grange would sell, he expected it to be about 30 to 40 per cent.
Mr Clark also confirmed Grange was seeking a royalty holiday from the WA Government, and while he did not detail how long that would be, it is believed to be up to five years.
He said the royalty concession, worth an estimated $80 million a year, would help underpin the $2.9 billion project and create 600 jobs.
“The project is large-scale . . . including significant investment in upgrading of infrastructure in the region,” he said.
“Royalties relief will assist project financing and be a positive step forward in bringing Southdown to reality.”
Despite strong lobbying from the mining industry, the Government last year rejected any concessions and confirmed the sector would be subject to a 5 per cent royalty on the value of its output.
Resources Minister Norman Moore said at the time the Government would, however, consider a royalty moratorium on a case-by-case basis.