China’s Ansteel is still bleeding cash at $4.7bn Karara magnetite mine

China-owned Karara Mining is still bleeding money from its $4.7bn WA iron ore mine, seven years after its first shipment was sent.

The Karara project is now heavily reliant on Chinese funding to stay in operation. Supplied

Chinese steel giant Ansteel is still losing money hand over fist at its $4.7bn WA magnetite mine despite the surging iron ore price, with the operation facing the prospect of refinancing $1bn worth of loans in 2020 while still losing money.

Despite selling its high-grade concentrate for an average of about $146 a tonne landed in China in 2019, Karara Mining still booked a net loss of $264.2m for the year – and said it had net cash outflow from operating activities of $146.1m after paying $259m in interest on its massive debts.

Karara is now wholly owned by Ansteel, after the Chinese steel giant took out ASX-listed partner Gindalbie Metals last year. The Australian-registered company that owns and operates the mine recently filed its annual financial accounts for 2019, showing the project is still deeply mired in debt and is still bleeding cash, despite the surging iron ore price over the last 18 months.

Karara spent about $4.7bn building the magnetite mine, 200km southeast of Geraldton in WA’s mid-west region. When planned it was supposed to produce 8 million tonnes a year of high-grade iron ore concentrate, destined for Ansteel’s Chinese steel mills.

But its latest accounts show it is yet to consistently hit its nameplate capacity, producing 7.5mt of concentrate in 2019, seven years after it loaded its first ship’s worth of product in Geraldton.

But it is primarily Karara’s crippling debt that weighs down its operations. According to its latest set of accounts the company has about $1.2bn worth of debt to repay or refinance in 2020, and another $3.7bn worth of borrowings to repay in future years. The last tranche of its long-term debt falls due in 2030.

Its interest bill in 2019 alone was $259m, and the company’s financial records show it is utterly reliant on its Chinese parent company if it is to continue operating.

So far in 2020 Ansteel has helped Karara win a 12 month extension on a $US160m loan from the Shanghai Pudong Development Bank, due for repayment in February, along with a $US300m loan from the China Merchants Bank and a $US130m working capital loan from the Bank of China due in June.

Ansteel itself also extended Karara a new line of credit worth about $374m in March.

Karara booked $939.4m in revenue from the sale of iron ore in 2019, with operating costs including depreciation and amortisation of $862.9m.

But while its accounts are still in a parlous situation, the iron ore price helped Karara to a far better performance in 2019 than the previous year, when it booked a $668m net less.