Latin American Mining deal of the year
It was a strange set of circumstances that witnessed the launch of
the largest mining project financing to date: a greenfield site in
Peru, the Latin American financial crisis and historically low
copper prices. Antamina not only overcame these but set a new level
of sophistication for political risk coverage.
The Peruvian government awarded the mine concession, located in the Huari Province of Peru, in September 1996. Prefeasibility studies of the copper deposits suggested 125 million tonnes of proven and probable reserves, and initial sponsors Rio Algom and Inmet believed that this could be doubled ? final reserves are now estimated at 494 million tonnes.
Given the 1.3% grade of the copper and the size of the reserve, mining this far down the cost curve was unlikely to present an obstacle. Of more concern was the state of copper prices (65cents/lb) during the period, which meant that bringing bank comfort to an acceptable level was vital. The present level of 85 cents has led to collective sighs of relief all round.
The sponsors, now comprising Rio Algom, Teck, Noranda and Mitsubishi, already in the business of taking commodity risk, required a viable means of overcoming political risk, Peru being, in the words of one individual involved, ?not a popular spot back then?.
Whilst having a reasonably mature legal and cultural framework for mining, maximising bank comfort and appetite were paramount, and given the size of the project the sponsors would be forced to tap every political risk insurance (PRI) resource available.
After approaching around 15 banks a lead arranger group of ABN Amro, ANZ, Bank of Montreal, Barclays Capital, CIBC Wood Grundy, Citibank, Deutsche and Scotiabank emerged. The planned $600 million in commercial finance was to be partially covered by PRI, if only to extend the tenors available to the sponsors given their target debt ratios. In the event a $200 million facility was uncovered, with a 10-year tenor, whilst a larger $335 million 12-year loan came under a policy put together by the Export Development Corporation (EDC).
The most significant aspect of this policy was the willingness of the commercial underwriter Zurich to come in under the EDC and alongside MIGA and the OND. This umbrella policy enabled the sponsors to streamline the cover offered and access the growing market in PRI, especially when the tenors offered by commercial insurers are approaching those of the multilaterals.
Further loans were provided by Jexim (now JBIC), KfW, EDC and Leonia/ABB Export Banks. JBIC also provided a $105 million cofinancing facility in which Fuji and BoT Mitsubishi participated to the tune of $65 million, although Japanese bank appetite was subdued given the JBIC guarantee. This $65 million was transferred to the Jexim portion from the commercial facility.
The final group of banks and sponsors also settled for state of the art pipeline technology to move the concentrate to the coast after examining trucking options. The transaction was not a highly leveraged one since prior to raising the finance around $600 million had already been sunk into developing the mine by the sponsors. A proposition the vast size of Antamina is unlikely to set a real precedent for the industry ? many of its most innovative features were forced by the need to tap financing sources as thoroughly as possible ? but as a sign of change in the PRI market it's a real fillip.
The Peruvian government awarded the mine concession, located in the Huari Province of Peru, in September 1996. Prefeasibility studies of the copper deposits suggested 125 million tonnes of proven and probable reserves, and initial sponsors Rio Algom and Inmet believed that this could be doubled ? final reserves are now estimated at 494 million tonnes.
Given the 1.3% grade of the copper and the size of the reserve, mining this far down the cost curve was unlikely to present an obstacle. Of more concern was the state of copper prices (65cents/lb) during the period, which meant that bringing bank comfort to an acceptable level was vital. The present level of 85 cents has led to collective sighs of relief all round.
The sponsors, now comprising Rio Algom, Teck, Noranda and Mitsubishi, already in the business of taking commodity risk, required a viable means of overcoming political risk, Peru being, in the words of one individual involved, ?not a popular spot back then?.
Whilst having a reasonably mature legal and cultural framework for mining, maximising bank comfort and appetite were paramount, and given the size of the project the sponsors would be forced to tap every political risk insurance (PRI) resource available.
After approaching around 15 banks a lead arranger group of ABN Amro, ANZ, Bank of Montreal, Barclays Capital, CIBC Wood Grundy, Citibank, Deutsche and Scotiabank emerged. The planned $600 million in commercial finance was to be partially covered by PRI, if only to extend the tenors available to the sponsors given their target debt ratios. In the event a $200 million facility was uncovered, with a 10-year tenor, whilst a larger $335 million 12-year loan came under a policy put together by the Export Development Corporation (EDC).
The most significant aspect of this policy was the willingness of the commercial underwriter Zurich to come in under the EDC and alongside MIGA and the OND. This umbrella policy enabled the sponsors to streamline the cover offered and access the growing market in PRI, especially when the tenors offered by commercial insurers are approaching those of the multilaterals.
Further loans were provided by Jexim (now JBIC), KfW, EDC and Leonia/ABB Export Banks. JBIC also provided a $105 million cofinancing facility in which Fuji and BoT Mitsubishi participated to the tune of $65 million, although Japanese bank appetite was subdued given the JBIC guarantee. This $65 million was transferred to the Jexim portion from the commercial facility.
The final group of banks and sponsors also settled for state of the art pipeline technology to move the concentrate to the coast after examining trucking options. The transaction was not a highly leveraged one since prior to raising the finance around $600 million had already been sunk into developing the mine by the sponsors. A proposition the vast size of Antamina is unlikely to set a real precedent for the industry ? many of its most innovative features were forced by the need to tap financing sources as thoroughly as possible ? but as a sign of change in the PRI market it's a real fillip.
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