Article excerpt

Breaking Hard Ground

Despite low copper and zinc prices and economic instability in Latin America, three Canadian companies have pulled together the biggest mining project financing ever to develop a $2.3 billion operation in Peru.

The $1.32 billion deal for the open-cut copperzinc mine in central Peru was finalized in late June by the three mining companies, Noranda, Rio Algom, and Teck.This amount is $60 million above the initial financing target.

Mitsubishi has agreed to acquire 10% of the new company, Compania Minera Antamina, subject to certain conditions. Mitsubishi's involvement in the deal paves the way for arrangements with Mitsubishi Materials and other Japanese smelters.These are expected to purchase about 20% of the mine's concentrates.

"The high proportion of uncovered financing is particularly significant," says Chris Beale, global head of project finance for Citibank and Salomon Smith Barney. Citibank was the global syndication agent for the financing and the political risk arranger as well. "The Antamina financing is a blockbuster, not only the largest mining project financing ever, but the largest project financing in Latin America this year," Beale says. "The large amount of bank financing done without political risk insurance is remarkable in the current environment, and it is a sign of lenders' confidence in Peru."

The commercial bank facility consists of a $335 million, 12year loan 90% covered by political risk insurance from a syndicate of insurers, led by the Export Development Bank of Canada and including Office National du Ducroire of Belgium, Multilateral Investment Guarantee Agency, Sovereign Risk Insurance, and Zurich US.The commercial banks' uncovered tranche is a $200 million, 10-year facility without political risk insurance.The ExportImport Bank of Japan (Jexim) co-financing facility is a $105 million, 12-year facility covered 100% by a political risk guarantee from Jexim.

"Antamina is a good bellwether for the Latin American project finance market, but lenders and investors in emerging market bonds are drawing sharp distinctions between countries," Beale says. …