Moma: Up a division

Moma Titanium is a highly leveraged but successful financing that sets precedents for junior miners producing a commodity for which there is no liquid market. Kenmare Resources, with a $269 million financing for Moma in Mozambique, has effectively quadrupled in size. That the deal achieved reasonably priced non-recourse debt financing adds to the peculiarity.

Kenmare began by approaching EIB with a project outline, and was told to find itself a financial adviser and an industrial partner.

Kenmare duly appointed NM Rothschild but such is the oligopolistic nature of the titanium compound market (few, large companies on the buy-side), Kenmare could not find an industrial partner. So, the project proceeded, but with a sponsor undertaking to raise additional equity through a share placement, and the EIB agreed to provide a subordinated quasi-equity tranche.

To ensure the viability of the deal, a series of sizeable obstacles had to be overcome ? Kenmare MD Michael Carvill likened the journey through to close to competing in the Grand National. He also adds: ?There were two fundamental difficulties that the project overcame: one, that bankable marketing deals are in place, and two, that a fixed price engineering contract was secured.?

The last piece in the jigsaw, before Kenmare tapped the LSE for £53 million, was a fixed-price lump-sum turnkey EPC contract that was agreed with a JV of Multiplex and Bateman. First production is scheduled for September 2006, with EPC completion scheduled for the end of September 2007. And a marketable offtake is in place ? the first five years of production is 57% covered by contracts with Dupont and Mitsui.

The deal required healthy coverage ratios and stringent distribution tests were needed, as well as the participation of development banks and ECAs. Of the $400 million total project costs, equity made up $131 million, and bank debt $269 million. The debt splits into $203 million senior debt and a $66 million, Euro-denominated, subordinated piece. Dutch development bank FMO took Eu15 million ($18.5 million) of the subordinated debt, with the European Investment Bank (EIB) taking Eu40 million. Tenor is 14 years.

The EIB's tranche came from investment facilities funded under the Cotonou agreement, which allocates money to the EIB for higher-risk projects than it would normally pursue with its own capital.

Of a 10-year ECA piece, Absa Bank underwrote $80 million, thanks to a guarantee from ECIC, and KfW took $30 million backed by Hermes. The 12-year non-ECA component was taken by the African Development Bank, $40 million; EIB, Eu15 million; FMO, $15 million; and KfW took $20 million with political risk insurance from MIGA.

The non-ECA tranche is believed to pay between 350-500bp, including insurance, and the ECA tranche is directly comparable but with much smaller margins and one-off upfront ECA fees. (Search ?Moma? on www.projectfinancemagazine.com for more).

Moma Titanium
Status: Debt closed 18 June, funding subject to share placement
Size: $400 million
Location: Moma, northeast Mozambique
Description: $269 million of senior and subordinated debt for Moma titanium mine.
Project companies: Kenmare Moma Mining (Mauritius) and Kenmare Moma Processing (Mauritius), wholly owned subsidiaries of Kenmare Resources plc
Financial adviser to the borrower: NM Rothschild
Equity adviser: Canaccord Capital
Lead arrangers: Absa Bank, European Investment Bank, African Development Bank, KfW Bankengruppe, FMO
Export Credit Agencies: ECIC, Hermes
Political risk insurer: MIGA
Technical adviser to the lenders: SRK, Cardiff
Legal counsel to the borrower: Sullivan and Cromwell
Legal counsel to the lenders: Millbank Tweed
EPC contractors: Bateman and Multiplex