Junior thinks big

Financing for the largest mine under development in Africa and one of the largest copper mines under construction globally was secured at the end of last year. The deal represents one of the largest ever financing packages raised for a junior resources company – Equinox Minerals.

Using a wide spectrum of sources, with 15 different facilities linked via common financing terms and involving different classes of capital, the structure includes senior secured debt, senior unsecured debt, subordinated debt, partially guaranteed debt, political risk covered debt, export credit agency (ECA)-backed financing and asset financing.

The financing was underwritten by three European banks and one South African bank with the sponsor being Australian. The financing includes several development finance institutions (DFIs) and ECAs and a Canadian equity raising.

Standard Chartered Bank (SCB), Standard Bank of South Africa, Standard Plc and WestLB were mandated lead arrangers for an innovative and complex US$583.8mn financing structure for the Lumwana copper project in Zambia.

A commercial tranche of US$81mn was jointly arranged and underwritten by Standard Bank Plc, SCB and WestLB, while a US$110mn ECA tranche involves cover from the Export Credit Insurance Corporation of South Africa (ECIC) – arranged by Standard Bank of South Africa and SCB – and Euler Hermes – arranged by WestLB and involving KfW-Ipex Bank as a lender.

A DFI tranche of US$173mn is provided by the African Development Bank (AfDB), Germany’s DEG, the European Investment Bank (EIB), Australian ECA EFIC, Holland’s FMO, KfW-Ipex and the Opec Fund for International Development (OFID).

A mining fleet tranche of US$165.8mn is asset-backed finance for the mining fleet, provided by Fortis Bank in conjunction with Canadian ECA EDC, Caterpillar Financial Services (UK), Caterpillar Financial SARL, and Sandvik Mining and Construction (Zambia).

The EIB is also providing a subordinated debt tranche of US$54mn, bringing total debt to US$583mn.

The facility represents around 65% of the whole project’s total capex requirement of US$877mn. The various tranches have tenors of between seven and 10 years and carry margins of 350-440bp over Libor during construction and 300-390bp thereafter.

The project is progressing on schedule with targeted completion in mid 2008. It is designed and structured to world standards and is Equator Principles compliant, with strong links to the local community. Plans include development of a new town and associated facilities, illustrative of a commitment to sustainability.

Established in 1995 and headquartered in Perth, Australia, Equinox Minerals is a junior international exploration and mine development company exploring base metals and gold in Africa, Australia, Peru, and Sweden.

Typical for a development company at this stage in its development, Equinox is not in production on any of its properties, and its only source of revenue is from interest on its cash balances.

Completion of the financing represents a milestone for Equinox, enabling the development of the Lumwana deposit to become a reality and transforming Equinox from a pure exploration company to a mid-tier operator forecast to generate cashflow of in excess of US$500mn in its first full year of operation.

Equinox has the support of the Zambian government, which has a US$30mn investment in the firm.

Lumwana Copper Project is located in the northwestern province of Zambia. The project involves the construction and development of a conventional open pit operation and processing plant, which will produce about 420,000 tons of copper concentrate containing 135,000 tons of copper metal per year.

The plant will be constructed by a joint venture between Ausenco and Bateman International under a fixed price EPC contract. Mobile equipment will be procured from Caterpillar, Hitachi and Sandvick Tamrock.


Deal information: 

Borrower: Lumwana Mining Company

Amount: US$583.8mn
Split into:

  • US$81mn commercial bank tranche
  •  US$110mn ECA tranche
  •  US$173mn DFI tranche
  •  US$165.8mn mining fleet tranche
  •  US$54mn subordinated debt facility

Lead arrangers (commercial tranche): Standard Bank of South Africa; Standard Bank Plc; Standard Chartered; WestLB

ECA tranche: ECIC; Euler Hermes

DFI tranche: AfDB; DEG; EIB; EFIC; FMO; KfW-Ipex Bank; OFID

Mining fleet tranche: Fortis Bank; EDC; Caterpillar Financial Services (UK); Sandvik Mining and Construction Zambia

Subordinated debt: EIB

Tenor: 7-9yr

Margin: Libor plus 350-440bp during construction; 300-390bp thereafter

Law firms: Milbank Tweed (lenders); Norton Rose (borrower)

Date signed: November 2006