Gindalbie Metal's WA iron ore mine Karara faces collapse

The China-controlled $2.5 billion Karara iron ore project in Western Australia faces collapse and the loss of 1000 jobs, with majority owner Ansteel saying its parent company might no longer provide funding because of the prolonged iron ore price slump.

Karara, a joint venture between Chinese state-run Ansteel and Australian-listed Gindalbie Metals, could be shuttered in the coming weeks if the Chinese steelmaker pulled its financial support, sources close to the project said.

Karara's chief executive Zhang Zhao Yuan has cast doubt over the viability of the project.
Karara's chief executive Zhang Zhao Yuan has cast doubt over the viability of the project. Photo: John W Banagan

In an email to staff, Karara's chief executive Zhang Zhao Yuan cast doubt over the viability of the project.

"Firstly, its parent company is unable to continue providing funding support to Karara due to the impact of economic and industry downturn," the email said. "Secondly, Karara is still facing significant cost pressure and being in a loss position."

Gindalbie entered a trading halt on Friday and will update the market on Monday with its assessment of the project. Karara declined to comment further, while Ansteel, China's fourth-biggest steel maker, was unavailable for comment.

Karara, 200 kilometres east of Geraldton, produces magnetite iron ore but has been losing money after the price of ore fell by nearly half in 2015 to trade at just $US42 a tonne.

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The Karara project received 12 months of royalty relief from the state government under a plan devised by Premier Colin Barnett. However, that year-long deal is thought to have expired on September 30.

Other ways of helping

It is understood Transport Minister Dean Nalder held talks with Ansteel and Gindalbie in late December to look at other ways of helping the miner.

The government is looking to lower port charges for the Karara development from the Geraldton Port and is also considering how it can help with power charges for the two companies. Karara hauls its iron ore through rail group Aurizon.

Australia already has two other magnetite export projects: the Sino Iron project owned by Citic, and the Savage River project run by Grange Resources in Tasmania.

Citic is mired in legal disputes with troubled mining entrepreneur Clive Palmer, while Grange warned earlier this week of job losses because of the low iron ore price.

Grange Resources general manager of operations Ben Maynard told the ABC that redundancies might be necessary, but the company would need to watch the iron ore price over the first quarter of 2016 before decisions were made.

Citi said this week it expected iron ore to fall back to $US30 a tonne, driven by poor Chinese demand for steel.

More pressure on prices

Iron ore stockpiles at ports in China are heading into 2016 at the highest level in more than seven months, a recent Bloomberg report said, putting further pressure on prices.

Holdings rose 0.8 per cent to 93.1 million tonnes last week in the final reading of 2015, Shanghai Steelhome Information Technology said. The inventories are at their highest since May 2015 and have expanded for four months.

Magnetite and haematite are iron oxides but have different compositions. Magnetite usually requires more processing before export as either a slurry or in pellets.