Equinox Minerals has announced it has reached financial close on its landmark US$583.8mn project financing signed in December 2006 to support the development of its Lumwana mine project in Zambia. The process for the first drawdown under the facility has now commenced, subject to the completion of equity expenditure as required by the lenders.
Under the terms of the financing, Equinox is also required to issue shares to the value of US$5mn to the European Investment Bank (EIB) as required under its subordinated debt facility. It must provide village housing for Equinox employees, implement a hedging strategy and secure offtake arrangements with smelters.
Following the deal’s financial closure, Export Finance and Insurance Corporation (EFIC), the Australian export credit agency, announced it is leading a group of private insurers to provide political risk insurance package to support the debt facility raised, as well as provide insurance to the bank providing hedging facilities raised to protect project revenue from negative fluctuations in the price of copper.
“This is the first time an export credit agency has provided political risk insurance cover that includes commodity hedging,” says Peter Field, executive director of business origination and portfolio management at EFIC. “It follows EFIC’s commitment of US$43mn to the US$584mn project financing facility signed last December.”
Commenting on the EFIC’s involvement with Equinox, Jan Fuchter, EFIC’s mining specialist comments: “This transaction demonstrates the ability of Australia’s smaller cap mining companies, which often have limited access to capital, to reach their full potential when finance and insurance is available.”
Adding his views on the risks in the Zambian market, EFIC’s chief economist Roger Donnelly remarks: “Zambia is characterised by a high, but declining, risk of debt default for external creditors and low to moderate political risk for direct investors.”
The Zambian mines are run by Lumwana Mining Company, a subsidiary of Equinox Minerals, an Australian and Canadian-listed mining company. The development of the Lumwana project will ensure the mine with become Africa’s largest open-pit copper mine. Through its involvement, EFIC is also indirectly supporting Australian exports as an Australian company Ausenco has been awarded the US$407.6mn engineering, procurement and construction contract for the project, along with its joint venture partner Bateman Minerals and Metals.
Last year’s US$584mn project financing was the largest debt package raised for a junior mining company to date. It was arranged by mandated lead arrangers Standard Bank, Standard Chartered Bank and WestLB, and was structured as a hybrid financing incorporating various tranches.
This includes ECA-backed credits provided by Export Credit Insurance Corporation of South Africa (ECIC) and Euler Hermes. EFIC provided a direct loan of US$43mn, along with other development finance institutions: African Development Bank, the European Investment Bank, DEG, KfW, FMO and OFID.
At the end of June this year, Equinox Minerals also signed a US$45mn contingent funding letter of credit facility agreement with Standard Chartered Bank to provide contingency funding obligations as required under the US$583.8mn project debt financing.
The contingent funding can also be used for general corporate purposes should the funds remain under the facility after the project is completed. Equinox is paying Standard Chartered arranging and commitment fees on the facility, and if the tranche is drawn down Equinox will issue common shares to Standard Chartered at that time at a discount of 6.75% to the volume weighted average trading price of the firm’s shares on the Toronto Stock Exchange over the five trading days preceding the drawdown.
The Lumwana mine is set to produce an average of 169,000 tonnes of copper metal per year, with construction on schedule for commissioning in the second quarter of 2008.