Mine developer Grange Resources and Chinese-backed Australian Bulk Minerals (ABM) announced a merger that would create a new, $1 billion iron ore group.

But Grange shareholders still have to agree to the merger, which effectively reduces their stake in the mine to 26.1 per cent.

The go-ahead was made more difficult after trading in Grange shares (GRR) was halted following a drop of 21.76 per cent on Monday and a 10.5 per cent fall last Friday.

The proposal is expected to be put to shareholders by the end of November.

Grange company secretary Neil Marston said the merger substantially changed Grange’s future attempts to fund the mine.

“It certainly gives us impetus going forward and solves one of the questions of who are your partners and how you’re going to fund it,” he said.

The merger, which links Southdown with ABM’s Savage River operation in Tasmania, is expected to enhance Grange’s ability to fund the mine project without requiring the involvement of further joint venture partners.

Grange entered into a joint venture agreement with Sojitz Corporation last year.

ABM’s operating expertise, personnel and training capability to enhance Southdown’s start-up process could enable a shorter ramp-up period.

If there is no problem, Mr Marston said financial closure could be in 12 months with the merger expected to increase Grange’s debt-carrying capacity.

He said Grange could now look more positively to be in a position to start earthworks on site at the end of next year.

“Basically we go from a company with market capitalisation of $200m, with no real, substantial cash flow, to a company worth about a billion dollars and revenue from an iron ore mine producing iron ore pellets today,” he said.

“It changes Grange substantially, and I am very confident it will make life a lot easier going forward when we come to raising the debt component for the project.”

Mr Marston said getting environmental approvals for the mine, the slurry pipe to the Albany Port and dredging of Princess Royal Harbour for iron ore ships had delayed the mine.

“We’re just pushing hard on getting the environmentals completed,” he said.

“The environmental approvals have taken longer than anyone estimated, but it’s part of the process.

“Where we are now, we are quite excited.”

The mine and the pipeline approvals are expected to be with the Environment Minister before the end of the year for sign-off.

The port approvals for the berth development and dredging of the channel will probably happen some time in the first half of next year.

Grange chairman Anthony Bohnenn said the merger transforming Grange into Asia’s leading magnetite iron ore pellet producer was an outstanding opportunity for his company’s shareholders.

“Savage River is an excellent project with very robust economics and strong existing cash flows,” he said.

“The merger provides exposure to this strong and growing asset as well as ABM management’s extensive knowledge and expertise in magnetite pellet production.

“This will be of enormous benefit in terms of optimising the development of Southdown.

“The merger also provides Grange with the financial capacity to accelerate the development of Southdown on favourable terms.”

He said the merger would create a unique value proposition for investors.

“We believe equity investors will increasingly gravitate towards Grange as their preferred magnetite iron ore exposure,” Mr Bohnenn said.

“A portfolio of development and producing assets, a market capitalisation exceeding one billion dollars, balance sheet strength and a supportive major shareholder are all attributes that will attract both exisiting and prospective investors in Grange.”

AMB managing director Dave Sandy said that Grange had a great project in Southdown and the merger would create a platform for major expansion of the group in Australia.