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How is it possible to make an impairment charge which is greater than the carrying value of the asset being impaired?

 

Hi mcart117,

 

I am not an accountant and I might be wrong, but I think your problem is that you are looking at the balance sheet as at 31/12/2013, not at the balance sheet as it would have been at 30/06/2014 without the writedown.

 

The Chinese partner converted $60 million in loans to new shares in kml.

 

It was said that about $111.1 million would be spent by kml in the 2014 year on capital works in order to carry out the work recommended by the Technical Review and additional minor works.

 

Drilling programs were undertaken by kml in the March quarter.

 

So my guess is that the balance sheet at 30/06/2014 would have shown GBG's share of joint venture assets at about $640 million, if they had not written down the value.

 

Do your own research. This is not investment advice.

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Hi Chukk, thanks for your reply. That seems a good explanation.

 

I'm not an accountant either. From memory, most companies, when they publish accounts, compare the newly published ones with the last published ones, and work their explanations from there. But who knows what these people have done?

 

One of the things I have noticed about engineering reports (and I bet this impairment was based on a report written by engineers) is that the engineering side is obviously great, and the numerical analysis is great, with really sophisticated scenario analysis, with what-ifs, probababilities, and "Monte Carlo" analysis. But you have to look at the economic and financial side of it really carefully. They often rely on "outside experts" with impressive names, and use that as an excuse for not questioning some fundamental assumptions, which can sometimes have an enormous, even catastrophic effect on the outome. I'm not saying this is the case here. I'm just saying engineering reports have to be read very carefully, and if you don't have access to the report, the conclusion sometimes needs to be taken in a circumspect pinch of salt kind of way.

 

And this is where the chartists come in. Without good information on some fundamental fundamentals, you need to be guided a bit by what other people are thinking and doing. :)

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  • 2 months later...

The notes in the annual report provide the answer to my question:

 

http://i1101.photobucket.com/albums/g434/mcart117/gbg1410_zps35a6e839.png

First the impairment was $630m not $640m as estimated. Then there is a mysterious "Share of profit" item, which makes it all balance out. Quite where it comes from is anybody's guess, but all that matters is that the cash is intact. With an MC of $49m at the current SP of $0.033, they are trading between FYE cash backing of $43m and equity without Karara of $57m.

 

I read somewhere that GBG guarantees the Ansteel loans to Karara. If that is the case, Karara going into admin would still be a major problem for GBG. Karara limping along for ever would be a neutral outcome. Karara being fully bought out by Ansteel or anyone else would be a bonus.

 

These guys pay themselves $7m a year to count boats or trucks, or whatever they do, so the current SP still seems to factor in the "bonus" outcome of someone paying something for Karara before the kitty runs dry in approximately 6 years.

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shipping at an annualised rate of 6.4 wet metric tonnes per annum.

 

Surely a typo? V1

 

The operational difficulties at the Karara Project have coincided with a period of significantly lower iron ore prices due to increased supply and a persistently high Australian Dollar. These factors have helped create what must be as close to the perfect storm as one can get.

The combined impact of these issues meant that, in accordance with Australian accounting standards, the Gindalbie Board made the decision to write-off the investment in KML and this was incorporated into the 2014 financial statements. Gindalbie continues to own its KML shares and the investment in KML remains a key asset. The write-down, however, reflects our value assessment of its value based upon the current underlying performance and current market fundamentals impacting upon KML.

On a positive note, KML is making progress with the debottlenecking of the Karara Project and improvements in production are being achieved. Production for the September 2014 quarter saw an increase of 35.5% over the previous June 2014 quarter. KML has advised it has made record shipments of magnetite concentrate in October 2014, shipping at an annualised rate of 6.4 wet metric tonnes per annum.

During the year Ansteel injected fresh cash into KML through a series of new shareholder loans and three prepayment or forward sale agreements. Ansteel also arranged three important new bank debt facilities as well as a new bank guarantee facility for KML. This financial support has been crucial to enable KML to meet both its ongoing financial requirements and to debottleneck the plant and increase production levels at the Karara Project.

Ansteel also converted two of its previous shareholder loans into new shares in KML which reduced GindalbieÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s shareholding in KML from 50% to 47.84% and shifted control of the entity to Ansteel with a shareholding of 52.16%. Ansteel has the right to subscribe for new equity in KML and if this right was exercised it would increase AnsteelÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s stake in KML to approximately 62%.

 

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On the 17th of March 2017, Gindalbie Metals Limited (ASX: GBG) (ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“GindalbieÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ or the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“CompanyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢) announced1 that it has entered into a farm in agreement with Terrace Mining Pty Ltd ('Terrace') for the Mt Gunson Copper-Cobalt Project, located 135km north of Port Augusta, South Australia.

 

The Mt Gunson Copper-Cobalt Project has two reported JORC Mineral Resources:

MG14 (JORC 2012) - 1.6Mt @ 1.4% Cu, 0.04% Co and 14g/t Ag; and

Windabout (JORC 2004) - 18.7Mt @ 1.0% Cu, 0.05% Co and 10g/t Ag

The key terms of the farm in agreement are:

Stage 1 - Gindalbie will spend A$1.37M during the first 12 months to earn 25%.

Stage 2 - Gindalbie will spend an additional A$2.5m to earn an additional 26% within a maximum of 4 years.

Stage 3 - Gindalbie can earn an additional 19% by spending a further A$2.75M within a maximum of 6 years. At the completion of Stage 3, Gindalbie has the option to purchase an additional 5% for A$1.5M.

 

The total of the staged and option payments is US$6.24M (A$8.12M)2, MinesOnline.com have discounted these payments by a nominal 10% discount rate to determine a NPV of US$4.48M (A$5.83M). Based on the discounted cash consideration and 75% of the Mt Gunson Copper-Cobalt Project's Total Resources, equating to 528.4Mlb CuEq3, the transaction is valued at US$0.008/lb4 on a resource tonne equivalent basis.

The valuation on a resource pound basis is at an approximate 20% discount to the MinesOnline.com's Exploration 1 year multiple (US$0.010/lb), equivalent to the 3 year multiple and at a 50% discount to the 5 year multiple (US$0.016/lb).

 

MinesOnline.com notes the similar recent transactions:

Tottenham - 2017 (2.1Mt @ 1.2% Cu for 55.56Mlb Cu) for US$0.54M - US$0.010/lb

Thaduna/Green Dragon - 2016 (5.14Mt @ 1.8% Cu for 203.77Mlb Cu) for US$1.53M - US$0.007/lb

 

www.minesonline.com

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