MMK could raise $700-mln Gazprombank loan for project in Australia
CHELYABINSK. March 30 (Interfax) - OJSC Magnitogorsk Iron & Steel Works (MMK) could conclude an up to $700-million loan agreement with Gazprombank , a source close to the company told Interfax.
MMK plans to allocate these resources towards a project for acquiring Australian iron ore company Flinders Mines, he said.
"For the project in Australia, a 100% MMK subsidiary has been established - Australia Pty Ltd. Through this company, Flinders Mines' purchase will be financed and, accordingly, its investment program will be implemented. This will require around $600 million, $300 million of which will come from a contribution to MMK Australia's charter capital, and another $300 million of which will come from a loan between MMK and MMK Australia," the source said.
Earlier on Friday, MMK said in a statement that its board of directors will in absentia discuss concluding a loan agreement with Gazprombank.
Ballots for absentee voting were provided to the board members on March 29 and will be accepted until April 2.
MMK's board of directors will also consider concluding a loan agreement between the company and MMK Australia Pty Ltd. In addition, the board will look into finalizing a supplement to the loan agreement between MMK and LLC MiG.
Interfax has so far been unable to obtain comment from MMK on the parameters of the loan agreement with Gazprombank.
Last year, MMK offered to buy Flinders Mines, the shareholders of which have already approved the deal. This deal has been sanctioned by the Australian Foreign Investment Review Board and now needs to secure federal court approval - the hearing will be held on April 3. The deal is worth 554 million Australian dollars (about $576 million at the current exchange rate).
Flinders said in a statement that 94.7% of its shareholders voted in favor of selling to MMK at A$0.3 per share.
MMK is in talks with banks on raising $600 million to finance the acquisition of Australian iron ore company Flinders Mines, an MMK representative told Interfax on March 21.
The MMK representative declined further comment, saying only that the company would not be breaking any covenants by taking on new loans. Debt/EBITDA was 3, or below the 3.5 allowed by covenants, at the end of last year.
MMK estimates investment of $1.05 billion will be needed to achieve targeted output of 15 million tonnes per year at Flinders by 2015. MMK itself only produces 30% of the iron ore it needs.
MMK's 2012 capex program has been lowered 42% to $700 million.
Flinders Mines holds licenses to a number of iron ore fields, some of them in Australia's Pilbara region, where world majors Rio Tinto and BHP Billiton are present. Production at the fields is slated to begin in 2014 and reach 15 million tonnes of ore per year.
The flagship project is the Pilbara tenement, with resources of 917.3 million tonnes to JORC and Fe content of 55.2%. The characteristics of one of the tenement's sections will allow for immediate ore shipments for export, while material from another section will require preliminary treatment. According to the pre-feasibility study for Pilbara's development, production should begin with 5 million tonnes of iron ore per year, reaching 15 million tonnes in the next five years. The cost of producing a tonne of iron ore is $35. Work on the mine is due to begin in Q1 2013 and production should begin in Q4 2014. First-stage project investment is $484 million.
The other project, Canegrass, is a magnetite ore field with an initially estimated 107 million tonnes and vanadium pentoxide content of 0.62%. Under the conditions of the purchase, the project's previous owner will come away with a 2% royalty.
