The $204 million equivalent financing package for Wolf Minerals’ Hemerdon mine in Devon, south-west England, combined guaranteed and unguaranteed commercial bank tranches with an equity bridge loan from Wolf’s largest shareholder.

Wolf Minerals Ltd

Status

Signed 10 May 2013

Size

£104 million

Description

Tungsten mine located in Devon, south-west England

Sponsor

Wolf Minerals

DEBT

£75 million term facility, $82 million equity bridge

Bank debt arrangers

Unicredit, ING, Caterpillar Financial

Offtakers

Wolfram Bergbau und Hütten and Global Tungsten & Powders

Financial adviser

Optimum Capital

Lender legal counsel

Dentons (banks), Allen & Overy (RCF)

Sponsor legal counsel

Mayer Brown; Stephens Scown (property)

Offtaker legal counsel

Norton Rose; Minter Ellison

Independent engineer

Micon

Resource study

SRK

Market consultant

Tungsten Resource

EPC contractor

GR Engineering

The £104 million ($170 million) mine sits on the third-largest tungsten deposit anywhere in the world. The mine has a measured and indicated mineral resource of 117.1 million tonnes, grading 0.14% tungsten oxide. China is home to over 60% of the world’s reserves of tungsten, which has industrial, mining and agricultural uses, principally because of its strength.

Hemerdon, while a comparatively large deposit, accounts for about 3.5% of global demand. The price of ammonium paratungstate, one of the more widely traded versions of the metal, has held steady at $380-$420 per tonne, though it lies close to the bottom of this range.

The mine uses open-pit technology, and benefits from its closeness to the port of Plymouth (10km) and a neighbouring china clay mine. Wolf plans to mine around 3 million tonnes per year of ore over a ten-year mine life.

The financing for Hemerdon benefits from the support of its main shareholders Resource Capital Fund V (35.4%), Todd Corporation (19.9%) and Traxys (19.9%). In January 2013, Wolf raised A$20.3 million ($18 million) in an equity placement that the three large shareholders all supported. Wolf had already agreed a $82 million equity bridge and prepayment with the Resource Capital fund. The $7 million prepayment gave the fund a 2% royalty on sales, while a $75 million bridge would allow the developer to start work before mine until it could draw on a senior debt package closed.

Wolf had received credit approval for a £55 million project loan in March 2012 from Caterpillar Finance, ING Bank and UniCredit, though at that time it estimated the cost of the mine at £74 million. Wolf had mandated the lenders for that loan in December 2011, when it thought that it might supplement the debt with £20 million in upfront subordinated lending from project offtakers.

But the presence of offtakers as subordinated lenders created potential conflicts of interest, especially since tungsten is so thinly traded. Instead, the two offtakers – Austria-based Wolfram Bergbau und Hütten and US-based Global Tungsten & Powders – provided debt guarantees equivalent to £10 million of the senior debt.

They did so because the sponsors mobilised German federal government, guarantees on 45% of the debt. Such guarantees are available for projects that produce metals that are deemed strategic to German interests.

The two offtakers – numbers two and three in the global tungsten market – have German sister companies, and promised that 45% of the mine’s output would end up in Germany.

As a result of the presence of the guarantees, the developer went back to the three lenders for an increased debt amount, for which they received credit approval in November 2012.

UniCredit, ING, and Caterpillar Financial are providing both the covered and the uncovered debt. The last of the three is participating on the back of Hemerdon’s use of Caterpillar equipment. The debt has a 7.5-year tenor, with a six-month grace period on repayments. Of the debt total, £5 million is a performance bond facility underpinning the project’s obligations to third parties.

The debt package signed on 10 May 2013, and could, in theory, fund whatever happens to Wolf’s equity raising plans. The $75 million 12-month RCF bridge drew in phases, with $40 million available immediately, and the rest became available when Wolf received all of its permits.

The RCF bridge must be repaid, probably with the proceeds of an equity-raising, before the term debt draws. If the equity raising failed, RCF would own around 60% of Hemerdon, and lenders would probably be comfortable funding on that basis. But Wolf was understood to be making good progress with its equity raising as Project Finance went to press.