Western Australian iron ore producer Gindalbie Metals Ltd and Chinese steelmaker Anshan Iron & Steel Group Corp (Angang Group) are planning to invest A$1.8 billion to develop the Karara iron ore mine in Australia and expect to obtain loans amounting to $1.2 billion from China Development Bank by early next year.

The Australian miner said it has got a letter of commitment from China Development Bank (CDB) and is discussing the detailed term sheet, according to the company's Chief Executive Officer Garret Dixon.

The accord may be signed by the end of this year, though more likely early next year and the terms of the loan are "very competitive", Bloomberg quoted the company chief as saying.

Work on the Karara project estimated to have a production capacity of 8 million tons of magnetite and 2 million tons of hematite annually started in November this year.

Analysts said Chinese steelmakers have not been successful in buying high-grade iron ore mines, as the Australian government is not keen on selling high quality assets.

But the quality of Australian iron ore is generally better than that in China, said industry analyst Zeng Hai with Guolian Securities.

Angang and Gindalbie hold 50 percent each in the Karara project, located 225 km east of the Geraldton Port in Western Australia. It is expected to start production in 2011 and would supply iron ore concentrates of at least 8 million tons per year to the Chinese steelmaker.

Angang Group imports only 20 percent of its iron ore requirements from abroad and is less reliant on foreign resources compared to other steelmakers. Baoshan Iron & Steel Co, China's largest steelmaker, imports 95 percent of its raw material requirements from other countries, according to a research note by China Chengxin International Credit Rating.

Chinese steelmakers will have stronger bargaining power in price negotiations only if they have access to more iron ore reserves, Zeng said.

Angang Group holds 36.28 percent stake in Gindalbie Metals and is the majority shareholder in the Australian miner after two share placements in June 2007 and early 2009.