DEACONS and Clayton Utz advised on a $1.8 billion deal between one of China’s largest steel producers and Western Australian miner Gindalbie Metals to develop a major iron ore project in Western Australia.
Anshan Iron and Steel Corporation (Ansteel), advised by Deacons, signed the joint venture development agreement with Gindalbie at an APEC ceremony in Sydney attended by Prime Minister John Howard and Chinese President Hu Jin Tao.
Clayton Utz’s Perth office advised Gindalbie in-house lawyer, David Stokes.
“In addition to being one of the first major Chinese investments in Australian infrastructure, it also involved parallel documentation for the establishment of a separate Chinese equity structure for the construction of a $200 million iron ore pellet plant in China which required a consideration of Chinese law issues,” said Deacons’ national China business group leader, Ian McCubbin.
Gindalbie and Ansteel have agreed to develop the Karara Magnetite Project and Mungada Hematite Project, which are 225 kilometres east of Geraldton.
Under the agreement, finalisation of the approval to mine at the sites must be completed within two months, and off-take and financing arrangements and environmental approvals must be received for both the Australian mines and Chinese pellet plants.
The Karara project is expected to generate an initial after tax free cash flow of $9.3 billion and an annual cash surplus after tax of $360 million. The Mungada project is expected to provide a cash flow of $184 million.
It is proposed the project will be financed on a 70/30 debt to equity ratio. Ansteel is contributing $105 million plus 50 per cent of the required equity ratio, and Gindalbie will provide the balance, including 25 per cent of the equity.
Gindalbie has also taken a $39 million share, or 12.78 per cent, in Ansteel.
McCubbin said the deal also reflected the growth opportunities for Australian and Chinese companies to move “beyond the traditional joint venture to forge strong, vertically integrated equity-based business relationships”.
The first shipments of hematite and magnetite are due in 2009, with production of pellets in 2010.
McCubbin was supported by Perth partners Liz Allnutt and Mike Frampton, senior associate Sarah Lilly, Georgette Leader, Natasha Vyrnwy-Jones and lawyers in Deacons’ Beijing office.