Following completion of a $269 million financing for the Moma Titanium project in Mozambique, Kenmare Resources has effectively quadrupled in size. The significance of the increase - Kenmare is listed on the Irish and London stock exchanges and has a net worth of about $69 million - is compounded by the fact that the project is thought to be the single largest investment on the African continent made by a UK-listed non-FTSE 100 company. That the deal achieved reasonably priced non-recourse debt financing adds to the peculiarity.

To ensure the viability of the deal, healthy coverage ratios and stringent distribution tests were required, 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 senior debt is split into a $110 million, 10-year, ECA-backed component and a $93 million, 12-year, non-ECA component. Absa Bank underwrote $80 million with a guarantee from ECIC (the South African ECA) and KfW took $30 million backed by Hermes. The 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.

Each participating institution was vital to the successful completion of the funding, says Michael Carvill managing director of Kenmare Resources. NM Rothschild, Kenmare's financial adviser drew together the final structure. There are several conditions precedent that must be in place before drawdown of the loan, including a $30 million contingency reserve account (CRA) and a $49 million shareholder account, of which $25 million must be spent on the project. An open placement of Kenmare shares funds this $79 million. This placement should go through by the end of July, at which point the deal can fund.

"The financing went very well," says Carvill. "It went a little bit slowly, but this was to enable the lenders to get comfortable with the deal on two grounds: one, that there is a fixed price contract for construction in place, and two, that suitable marketing arrangements were made to meet the financing and operating costs."

The mine is expected to return $95 million per year. The difficulty of putting together the financing with such a degree of leverage was compounded by the opaque nature of the Titanium compound market, so marketing arrangements were crucial: the first five years of production is 57% covered by offtake agreements with Dupont and Mitsui. The largest demand for titanium feedstock - some 94% of total demand - is for the manufacture of titanium dioxide pigment, which improves the opacity of paint. Much of the remaining demand is divided between the manufacture of titanium metal and welding electrodes.

The project companies are two wholly owned subsidiaries, Kenmare Moma Mining (Mauritius) and Kenmare Moma Processing (Mauritius), whose assets are security for the borrowings. Security includes a charge over the companies' accounts and a pledge over the contingency reserve account and shareholder funding account. Kenmare will provide a full completion guarantee for all debt facilities, subject to a carve-out for defaults by defined political events. This guarantee will be supported by the CRA, which must be replenished by additional share placements if costs exceed cash and loan resources. With regard to the CRA, there is a fair degree of leeway woven into the guarantee: there is a $20 million allowance for cost overruns, and no recourse to the account up to a 6 month delay in construction. This lender-friendly structure, which includes $30 million set aside for their comfort, is the trade-off Kenmare shareholders accept. 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. The project turns non-recourse once mechanical completion has passed and certain financial targets are met. Financial completion includes completion of the plants' construction to a point where it is operational in a defined manner, expected by the third quarter 2007.

Kenmare has agreed a lump-sum turnkey EPC contract with a joint venture formed between Multiplex Contractors and Bateman. The contractors offer completion guarantees on a joint and several liability basis, reducing technical completion and cost-overrun risk. The contract has a maximum price of $236.75 million and a maximum commissioning period of 39 months. First production is scheduled for September 2006, with EPC completion scheduled for the end of September 2007.

The project will be located in a remote region in northeastern Mozambique and will consist of concentrator plant, dredges, dredge pond, concentrator plant, minerals separation plant, tailings dam, access road, export jetty with product storage and loading facility, electrical transmission and generation facilities, accommodation village and other infrastructure.

The project is expected to produce about 600,000 tonnes of Ilmenite, plus associated products of Rutile and Zircon, following a 27-month construction period and a 12-month production ramp-up period. The mine has proved reserves of 296 million tonnes and 174 million tonnes of probable reserves. The reserves provide a mine life in excess of 20 years and further mineral resources have been identified that could extend operations up to 80 years.

This project sets a useful precedent for an African investment by a relatively small-cap project company operating in an untried market and for which there are no close comparators. Despite the mine's credentials, Carvill says that it would not have come to fruition without investment from a junior mining company.

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