Commodity prices have still not climbed far enough out of their slump to bring confidence back to the project finance market in Latin America. The rash of devaluations in the region lent further credence to pessimists predicting retrenchment from the fevered activity of the first part of the decade. And those sponsors investing are making sure they avoid the more complex risks of greenfield projects in undeveloped areas.

It is possible, however, that the prospect of rises in both precious and base metals prices might help launch new projects soon. Copper and Aluminium are forecast in some quarters to experience rising prices through dwindling stocks: an opportunity, where new mining operations can be assembled quickly.

Yet deal structure has still preoccupied banks forced to tighten their belts after the Latin American free-for-all of several years ago. Given the time-scale involved with infrastructure construction and government approval, tightly structured deals are now the norm. Pricing has rarely dipped below 200bps, at least in part because of the low ratings given to local mining companies with critical financing needs.

Latin America's single greatest asset at present is its low-cost environment - where deposits are close enough to the surface its projects can attract finance where new facilities in South Africa, Canada and the US fail.

A few deals have reached signing in this half of the year, including the El Tesoro Copper Mine in Chile, lead financed by Dresdner, Royal Bank of Scotland and Santander. The sponsors providing $88 million in equity, Antofagasta Holdings, Equatorial Mining, an AMP subsidiary, and Antofagasta affiliate Michilla, conducted feasibility studies two years ago, and arranged a 10-year $205 million loan in August. Kvarner, the study authors, were awarded the $170 million EPC contract in June of this year.

El Tesoro is located in north Chile close to existing mining operations, including those of Michilla, and were able to prove that their extraction costs could be kept close to comparable producers, at around 45 cents per pound. The deal proves that banks are prepared to show interest in deals if sponsors are sure that their costs are low enough to withstand price volatility.

The San Cristobal project in Southern Bolivia received a positive feasibility study last month, enabling its sponsors, Apex Silver, to offer new equity as part of its contribution to the deal. Apex is fortunate in that the open-pit San Cristobal mine's reserves will be relatively easy to get at and transport routes to the Chilean coast are relatively well developed. It shares with other precious metals a decreased sensitivity to infrastructure costs - Apex can bring silver ore to the coast by road.

The Peruvian Antamina mine, which will produce copper and zinc, illustrates the need for base-metal mines to put in place a highly developed infrastructure. It not only ensured a supply contract for 120 MW from Edegel, but has also developed a sophisticated pipeline arrangement to carry concentrate to the pacific coast, at a cost of $180 million. What the Compania Minera Antamina has called - a unique engineering feat in the country - has increased the project costs by over $35 million, with a correspondingly higher repayment rate.

Antamina was seen as a well-structured, sensible project whose time was not quite due. This was in large part because of the period of sustained low prices in the copper market- a problem that should be remedied in the foreseeable future. Copper demand is expected to grow by around 10 % in 2000, perhaps to a level of 100 cents a pound by 2001.

Metal price forecasts have been a real concern for the dwindling number of banks prepared to look at large mining deals. Banks are now looking at reliable names with low overheads, and tend to spread financing widely. Antamina's $200 million uncovered loan was shared between 8 banks, including strong regional players Barclays and Deutsche.

The sponsors, including Canada's Rio Algom, Noranda and Mitsubishi, have managed to secure a large part of the $1.32 billion financing from ECAs. Between them the EDC, Jexim, KfW, Leonia and ABB have provided around $680 million in financing. Of the remaining $640 million around two-thirds is covered by political risk insurance, a sign of the uneasiness felt by banks operating in Latin America. A number of projects in Venezuela are still on hold while the country resolves its constitutional situation.

Placer Dome had been looking in 1998 at credit enhancements for its $575 million Las Cristinas Gold project in Venezuela. Eventually it was decided that low gold prices, lack of interest in emerging market debt and the election of the forceful President Chavez made internal financing a cheaper option.

In Chile the mood is far more upbeat: the state copper producer Codelco recently abandoned its investment freeze. It has set aside $708 million for use in projects, many of which have yet to get approval. Cyprus Amax, producing copper at two mines in Peru and Chile, is waiting for an improvement in prices before it develops its Cerro Negro deposit in Peru. Cambior cited similar reasons for postponing financing on the El Panchon copper mine in Argentina.

Expansion projects still have the major share of project financing because greenfield deals have been hampered by a lack of bank liquidity. There is little incentive for banks to look at projects involving infrastructure development when margins on brownfield projects are more competitive. The strain on more remote projects has to be taken up by multilaterals and/or local operators investing for less obviously commercial reasons. The IFC, as part of its mandate to bring financing to less developed locations, has put $100 million into the Yanacocha development in Peru- until Anatamina the first outside investment in the country's mining for 20 years

Argentina has been the location for two recent precious metal projects, although the ratings outlook for the country (-BBB, negative) reflects a lack of confidence in the country's financial future. The $270 million Cerro Vanguardia development that started operating last year had to structure its financing in such a way that there was a measure of recourse to the shareholders, including Anglo American, Formicruz and Perez Companc, during construction.

The Pirquitas silver mine is going through a similarly tortuous route to completion. It recently obtained its operating permit after a positive environmental impact study from the authorities in Jujay, the project's location. It has been able to increase production forecasts by 20%, and should be well placed to exploit the current deficit in the world silver stocks. Sponsors Sunshine Mining and Refining have asked Barclays Capital and Warrior, a Standard Bank division, to look at financing structures, but this process is still on hold while it optimises the feasibility study it received from Jacobs Engineering.

This second look at the project has been forced by a better than expected ore grade in the deposits and an increase in pre-concentrator capacity by 50%. The higher silver production has increased the rate of return on the project from 20% to 27%, and Sunshine believes that this will substantially increase the deal's saleability. Standard are one of the arrangers that may be brought in when the financing announcement comes at the end of the year.

There may even be a surge of interest in gold projects if the European Central Banks' commitment to stagger and limit gold sales can be converted into sustainable high prices. The 20% increase in the last two months is not seen as sustainable, but few analysts see the levels returning to the lows of September.

More problematic for finance sources is the hedge exposure of gold producers - Ashanti could well be just the tip of an iceberg of miners caught unawares by the recent price turnaround. The silver price, which has stabilised after the highs of the first part of 1998, has not fed through to the financing market yet.

For every return to the continent by a big-name sponsor, however, there are many others waiting in the wings for a positive forecast consensus to emerge.

Industry behemoths such as Rio Tinto have no plans to move beyond their present bases. Billiton has begun exploratory work on a copper deposit in Ecuador, with a view to forming a joint venture with Canadian Corriente Resources, but has not revealed its financing preferences yet.

Junior partners have as many deals on offer as they had several years ago, but bank memories of bad debt are too long to predict any great increase in big-ticket projects. One banker involved in the continent describes the situation as "pretty sad. There aren't many banks that are all that proactive in looking at new opportunities." Nevertheless, until prices again attain the levels necessary to cover developing world production costs, Latin America will still have a competitive advantage for new mining projects.