Chilean mining company Antofagasta and Japanese trading house Marubeni suspended development of the Minera Antucoya copper mining project in Chile in December 2012. The two sponsors wanted to review its costs, amid general price escalation in the country’s mining industry.

Minera Antucoya

STATUS

Financial close 6 December 2013

SIZE

$1.9 billion

DESCRIPTION

Open-pit copper mine located in northern Chile

SPONSORS

Antofagasta (70%), Marubeni (30%)

DEBT

$650 million

LENDERS

JBIC, EDC, KfW, Mizuho, SMBC, Natixis, ING, Corpbanca, BancoEstado

SPONSORS’ FINANCIAL ADVISER

NM Rothschild

SPONSORS’ LEGAL ADVISER

Sullivan & Cromwell

LENDERS’ LEGAL ADVISER

Milbank Tweed Hadley & McCloy

EPC CONTRACTOR

SNC Lavalin

But lenders kept faith with Antucoya, in large part because the $650 million package accounts for a little over a third of the mine’s $1.9 billion overall cost. They closed on the financing in December 2013, after starting work on the deal in February 2012. Antucoya was the largest mining financing to close in the Americas in 2013.

Mining is Chile’s largest revenue-generating industry, but has recently had to confront mounting cost pressures and a scarcity of water, power, and qualified labour. Projects have stalled, some of them indefinitely. Developers have also had to cope with opposition on social and environmental grounds, and occasional legal challenges.

Marubeni’s relationship with Antofagasta began in 2008, when it acquired a stake in the Esperanza copper project in Chile. Copper demand is high in Japan and many of the country’s users have cultivated Antofagasta to help maintain access to supplies of the metal in the medium- to long-term. When Marubeni bought 30% of the Antucoya project in August 2012, for $350 million in cash, it marked its fifth venture with the UK-listed miner.

Industry woes might have disrupted Antucoya’s development, but they helped the mine stand out in front of debt providers. “We tapped the market at a time when some alternative projects were being suspended or cancelled, which allowed us to gain more focus from the then potential lenders,” says Francisco Lepeley, chief financial officer of project company Minera Antucoya.

The US dollar-denominated debt package featured local and international lenders. Antucoya was the first mining project financing for BancoEstado and Corpbanca, two Chilean banks. The club of six commercial banks also included Mizuho, SMBC, Natixis and ING. The lenders in the club provided equal commitments of about $52.5 million.

JBIC provided $195 million of the project debt, on the back of Marubeni’s involvement in the deal, and also led a $479 million corporate loan to Marubeni to help it fund the acquisition of the equity stake and its share of the project’s equity funding. Export Development Canada (EDC) and KfW IPEX-Bank each provided loans of $70 million.

Antofagasta resumed work on the project in March 2013 with a budget of $1.9 billion, up from $1.7 billion. The developer also decided to scrap the construction of an accompanying acid project. Despite the delay and the revised cost structure, the sponsors managed to keep the lending group in place.

The Antucoya financing illustrates the increasing comfort of Chile’s local lenders with project finance credits. Local banks have taken the lead in financing transport and social infrastructure in the last five years, but are now venturing into energy and resources. They featured, for instance, in the financing that AES Gener closed in late 2013 for the Alto Maipo hydro project.

Chilean banks’ cost of funding in US dollars has fallen, making it possible for them to compete for this business. Lepeley suggests that the strength of the country’s financial system and the continuous improvement in Chile’s sovereign rating makes Chilean banks very competitive against European lenders.

The open pit Antucoya mine, located in the country's arid north, will use sea-water pumped through an existing pipeline from Antofagasta’s nearby Esperanza project. Antucoya is projected to produce 85,000 tonnes of copper cathodes annually over its first 10 years.

At financial close, 32% of physical construction was complete, as was 60% of the overall project, if defined to include design, procurement and physical construction. Nevertheless, the sponsors provided lenders with a completion guarantee.

Antofagasta managed to keep cost increases at Antucoya to a minimum, in part because it was applying similar cost-reduction techniques to its other properties. The experience should serve it well during a difficult period for miners.