El Tesoro refinances
Mining deals have found few takers, and even fewer sponsors, in the
last several years. Those that have hit the market have been either
extremely low-cost African gold properties or niche operations like
Aber Diamond's $230 million financing for a Canadian mine with a
Tiffany offtake. El Tesoro harks back to the base metal financing
spree of the late 1990s ? a project whose healthy fundamentals have
helped it survive the vicissitudes of the copper market intact.
El Tesoro's owners are Antofagasta plc (61%) and Equatorial Mining (39%). Equatorial is an Australian miner, while Antofagasta is a UK-listed company with global assets that is controlled by the Luksic family. Minera El Tesoro comes under the operations of Antofagasta Minerals, a wholly-owned subsidiary formerly known as Anaconda.
The deal refinances a facility signed at the end of 1999 ? a $205 million deal led by Royal Bank of Scotland and Banco Santander. The deal built upon the 1997 Los Pelambres financing, considered by some to be the prototypical Chilean mining transaction. Los Pelambres established some of the features of multisourced financing that were to influence El Tesoro and the giant Antamina financing, which also signed in 1999.
El Tesoro is a heap-leach cathode copper operation and has a 21-year expected life. The mine is designed to have a capacity of 85,000 tonnes of capacity. It will also be a very low cost producer, with an average cost of roughly 39 cents per pound, although for the first five years of the mine's life it will be about a cent higher.
The copper market has been subject to extreme volatility, as evidenced by recent copper trading scandals. Nevertheless, the nadir of copper prices in November 2001 was at the level of 58 cents per pound, still comfortably above El Tesoro's costs. It is this solid prospect that makes the mine such an attractive refinancing prospect.
The original deal was for $205 million and reflected lingering concerns about how much leeway to give the sponsor in terms of distributions. Market rumour at the time pegged the pricing at 250bp over libor precompletion, and between 225bp and 300bp thereafter. Those approached to confirm this have suggested that this was inaccurate, but have declined to confirm the previous pricing.
It is clear, however, that whatever the change in the amortization structure the sponsor will have enjoyed a lowering in the price of its debt. No firm confirmation of the new pricing exists, although those approached suggested that the 200bp level was roughly appropriate. The tenor is also unchanged, so that 7.5 years of the original 10.5-year tenor is still outstanding.
Also unchanged is the role of the Kreditanstalt fur Wiederaufbau (KfW). The German bank put up a separate tranche of $36.9 million, and the repayment terms on this have not been changed, although it did take part in the negotiations for the common terms of the transaction. The KfW's involvement is not in support of an exporter, but of an importer ? a substantial part of the output of the mine is destined for Norddeutsche Affinerie. The offtaker is one of the largest users in the market, and will have provided a crucial layer of credit comfort.
Chile is in a strong position relative to its peers, so political risk insurance is not required, and has not been since around 1994. Nevertheless, to avoid convertibility issues the standard offshore escrow account has been deployed to hold cash before this can be distributed to lenders and sponsors.
The deal is also understood to enjoy a far less aggressive amortisation schedule than the previous financing, so that Antofagasta can see earlier returns on its investment than might have been the case. While the lead arrangers would not confirm this, and Antofagasta Minerals did not comment as Project Finance went to press, this appears to be a recognition of the sponsors keeping construction costs down, through the use of a Kvarner turnkey contract, and production ahead of schedule.
The estimated total cost of the mine's development was $296 million, and the sponsors brought it on-line around $14 million below that. The mine was commissioned in June 2001, produced 34,000 tonnes of cathodes and $58.1 million in revenue before year-end. Such a performance will have endeared the mine to its new arrangers.
RBS kept a lead arranger spot and was joined by Credit Lyonnais at the top spot. The $147.8 million deal proved popular, but was syndicated to a select number of institutions. These were arrangers WestLB and Hypovereinsbank (commitments of $25 million), senior managers Fortis and LB Kiel ($15 million) and manager NM Rothschild ($10 million).
El Tesoro's owners are Antofagasta plc (61%) and Equatorial Mining (39%). Equatorial is an Australian miner, while Antofagasta is a UK-listed company with global assets that is controlled by the Luksic family. Minera El Tesoro comes under the operations of Antofagasta Minerals, a wholly-owned subsidiary formerly known as Anaconda.
The deal refinances a facility signed at the end of 1999 ? a $205 million deal led by Royal Bank of Scotland and Banco Santander. The deal built upon the 1997 Los Pelambres financing, considered by some to be the prototypical Chilean mining transaction. Los Pelambres established some of the features of multisourced financing that were to influence El Tesoro and the giant Antamina financing, which also signed in 1999.
El Tesoro is a heap-leach cathode copper operation and has a 21-year expected life. The mine is designed to have a capacity of 85,000 tonnes of capacity. It will also be a very low cost producer, with an average cost of roughly 39 cents per pound, although for the first five years of the mine's life it will be about a cent higher.
The copper market has been subject to extreme volatility, as evidenced by recent copper trading scandals. Nevertheless, the nadir of copper prices in November 2001 was at the level of 58 cents per pound, still comfortably above El Tesoro's costs. It is this solid prospect that makes the mine such an attractive refinancing prospect.
The original deal was for $205 million and reflected lingering concerns about how much leeway to give the sponsor in terms of distributions. Market rumour at the time pegged the pricing at 250bp over libor precompletion, and between 225bp and 300bp thereafter. Those approached to confirm this have suggested that this was inaccurate, but have declined to confirm the previous pricing.
It is clear, however, that whatever the change in the amortization structure the sponsor will have enjoyed a lowering in the price of its debt. No firm confirmation of the new pricing exists, although those approached suggested that the 200bp level was roughly appropriate. The tenor is also unchanged, so that 7.5 years of the original 10.5-year tenor is still outstanding.
Also unchanged is the role of the Kreditanstalt fur Wiederaufbau (KfW). The German bank put up a separate tranche of $36.9 million, and the repayment terms on this have not been changed, although it did take part in the negotiations for the common terms of the transaction. The KfW's involvement is not in support of an exporter, but of an importer ? a substantial part of the output of the mine is destined for Norddeutsche Affinerie. The offtaker is one of the largest users in the market, and will have provided a crucial layer of credit comfort.
Chile is in a strong position relative to its peers, so political risk insurance is not required, and has not been since around 1994. Nevertheless, to avoid convertibility issues the standard offshore escrow account has been deployed to hold cash before this can be distributed to lenders and sponsors.
The deal is also understood to enjoy a far less aggressive amortisation schedule than the previous financing, so that Antofagasta can see earlier returns on its investment than might have been the case. While the lead arrangers would not confirm this, and Antofagasta Minerals did not comment as Project Finance went to press, this appears to be a recognition of the sponsors keeping construction costs down, through the use of a Kvarner turnkey contract, and production ahead of schedule.
The estimated total cost of the mine's development was $296 million, and the sponsors brought it on-line around $14 million below that. The mine was commissioned in June 2001, produced 34,000 tonnes of cathodes and $58.1 million in revenue before year-end. Such a performance will have endeared the mine to its new arrangers.
RBS kept a lead arranger spot and was joined by Credit Lyonnais at the top spot. The $147.8 million deal proved popular, but was syndicated to a select number of institutions. These were arrangers WestLB and Hypovereinsbank (commitments of $25 million), senior managers Fortis and LB Kiel ($15 million) and manager NM Rothschild ($10 million).
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