A unique lending group spawned by a unique sponsor line-up the $2 billion Caserones copper mine project is the first of its kind to feature Japanese sponsors, offtakers and three Japanese government backed financial institutions JBIC, NEXI and JOGMEC. With the exception of HSBC in the commercial lending group, the Chilean project is an all-Japanese affair.

The reason for the Japanese content is lack of Japanese domestic copper mining resources, a large domestic smelting industry in need of feedstock and increasing competition globally for copper concentrates. The deal represents a new level of co-operation within the Japanese project sector, a bid to compete more effectively for natural resources on a global scale and a financial template that is certain to be repeated.

The borrower is special purpose company SCM Minera Lumina Copper Chile (MLCC), and the project is ultimately sponsored by JX Nippon Mining & Metals Corporation, Mitsui Mining and Smelting and Mitsui & Co. JX Nippon Mining and Metals and Mitsui Mining and Smelting own their interests in MLCC through an intermediate joint venture Pan-Pacific Copper Co (PPC).

PPC is the largest copper smelter in Japan and since the demise of the domestic copper mining industry has had to import copper concentrate feedstock. But with the growing demand for concentrate from China, India and Indonesia, PPCs ability to negotiate on price with third party sellers has been weakened. Furthermore, mergers in the global mining industry have cut opportunities to acquire minority ownership interests in large- scale mining projects. Consequently, PPC has embarked on a strategy of mine ownership, and Caserones is the first major implementation of that policy.

The Caserones deposit was discovered in the 1980s and is located 160km south-east of Coipapo. The mine has proven and probable ore reserves and inferred ore resources of 1.343 billion tonnes, with an estimated mine life of 28 years. This translates into a 150,000-tonnes annual average output of copper concentrate during its first 10 years of full operation, which is expected to meet about 11% of Japans annual demand for copper concentrate. The mine is also expected to generate an annual average of 3,000 tonnes of molybdenum.

The deposit will be mined with conventional, large-scale open-pit mining techniques and conventional processing technology. Two production methods of concentration and leaching will be employed, each of which produces copper concentrate and copper cathode, respectively, from ores with different characteristics. Start of production is scheduled for early 2013 for refined copper, and for the fourth quarter of 2013 for copper and molybdenum concentrate.

Debt financing for the project comprises a combination of senior and subordinated loans. The $1.1 billion senior facility is split between a $770 million 15-year direct loan from JBIC and a commercial bank-funded $330 million 15-year term loan. Bank takes on the commercial loan are $90 million each from Bank of Tokyo-Mitsubishi UFJ (BTMU), Mizuho Corporate Bank (Mizuho) and Sumitomo Mitsui Banking Corporation (SMBC), and $60 million from HSBC (Tokyo branch). Nippon Export and Investment Insurance (NEXI), is covering 100% of Chilean political risk and 97.5% of commercial risk on the commercial tranche.

The $300 million sub-debt is provided by BTMU, Mizuho, SMBC, Chuo Mitsui Trust and Banking and Sumitomo Trust & Banking to a financing vehicle, Caserones Finance Netherlands BV, held by Mitsui & Co (25%) and PPC (75%). Caserones Finance on-lends the funds to MLCC. Sub-debt lenders benefit from a guarantee from Japan Oil Gas and Metals National Corporation (JOGMEC), with recoveries capped at 90%, and limited sponsor support.

The senior financing benefits from a full offtake agreement from the sponsors, completion support during construction and then becomes fully limited recourse upon project completion. The security package includes a pledge of shares in MLCC, and collateral over key project documents, permits and approvals, project assets, accounts and proceeds of insurance policies.

The sponsors, shareholders, senior lenders and MLCC also entered into an agreement to oblige the sponsors and shareholders to continue to hold a percentage of the shares in MLCC, thus ensuring their commitment to the project until maturity on the loan.

SCM Minera Lumina Copper Chile
STATUS: Signed 26 July 2011
DESCRIPTION: Development of a 150,000 tpy copper and moilybdenum mine in Chile.
TOTAL PROJECT COST: $2 billion
TOTAL SENIOR DEBT: $1.1 billion
SUB-DEBT: $300 million
SPONSORS: JX Nippon Mining & Metals Corporation and Mitsui Mining and Smelting Co (via Pan-Pacific Copper 75%), Mitsui & Co (25%)
FINANCIAL ADVISER: Mizuho
MLAS: SMBC, BTMU, Mizuho, HSBC,
SUB-DEBT PROVIDERS: BTMU, Mizuho, SMBC, Mitsui Trust & Banking, Sumitomo Trust & Banking
JAPANESE GOVERNMENT SUPPORT: JBIC, NEXI, JOGMEC
LENDER LEGAL COUNSEL: Milbank Tweed; Philippi Yrarrazaval Pulido & Brunner
SPONSOR LEGAL COUNSEL: Morrison & Foerster; Jara del Favero Abogados COUNSEL TO JOGMEC: Nishimura & Asahi