Australia’s Export Finance and Insurance Corporation (EFIC) has provided political risk insurance (PRI) to a syndicate of commercial lenders in support of Ausenco International’s execution of a contract to develop the Kwale mineral sands project in Kenya.

Insuring a total debt of US$80mn for a period of eight years, EFIC has extended PRI to cover senior lending facilities provided by the lenders (there is also a further senior debt facility of US$40mn provided by the African Development Bank that does not require PRI).

The Kwale mineral sands project, to be completed by late 2008, has an estimated capital cost of US$178mn.

Tiomin Resources has appointed Ausenco to carry out key elements of the engineering, procurement and construction management (EPCM) contract for the Kwale project from its Queensland base.

“Tiomin’s lenders required political risk insurance before they would provide the necessary debt facilities. EFIC worked with Ausenco and Tiomin to ensure that their support would address the needs of the lenders. To this end, EFIC’s support of Tiomin was essential to our continued involvement,” says Ausenco managing director, Zimi Meka.

EFIC’s PRI policy will cover the lenders – Standard Chartered Bank, WestLB and Caterpillar Financial – against the political risks that could affect the project. EFIC first started discussions with Tiomin in 2004 about their plans for the project and the potential for Australian involvement, and was formally engaged in April 2006. Intensive negotiations with the lenders commenced thereafter and were fast tracked to close in August to ensure the project was not delayed.

“The Kwale project represents a sizeable foreign direct investment in Kenya, and the largest in the country’s mining sector,” says Angus Armour, managing director of EFIC.

“Ausenco will be able to build upon its mineral sands engineering experience to project manage the design and construction of a cornerstone project that will not only assist in creating local employment opportunities, but which should contribute significantly to Kenya’s future economic growth,” adds Meka.

EFIC’s support for Australian companies in Africa is increasing, says Armour. “The number of Australian companies seeking opportunities in Africa, and particularly in the resources sector, has never been higher. With the increased level of activity, comes an increasing awareness of the types of risks to be encountered and recognition of how EFIC can assist to mitigate those risks.”

EFIC has a long history of supporting resource projects in PNG, Asia and Latin America, and working with commercial banks in these regions to secure contracts for Australian engineering firms and helping Australian firms to develop their overseas projects.

In assessing the project, EFIC worked closely with Tiomin’s financial adviser, Barclays Capital, who has significant experience in the mining sector.