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Crédit Agricole CIB, ING Capital, Mizuho Corporate Bank, SMBC, and The Bank of Tokyo-Mitsubishi UFJ closed a US$1.05bn financing in support of Esperanza, a copper-gold project in Antofagasta in northern Chile, and one of the largest mines in the world.

The billion-dollar project is the largest mining transaction in the Americas for the last 10 years, and is also the largest project to be financed in Chile to date.

The large-scale transaction was successfully concluded despite dramatic collapses in commodity prices in the fourth quarter of 2008, in the midst of the lenders carrying out due diligence on the project.

Luis Fernando, vice-president, Latin America structured finance, SMBC, adds: “Most of the past mining deals in Latin America had been financed on a corporate basis or with equity from the sponsors. The key benchmark here was a project finance mining deal of substantial size, long tenor, and with lenders taking certain risks such as commodity price risk.”

Sponsors on the project are Antofagasta, which owns 70% of the mine, and Marubeni Corporation which owns 30%. Antofagasta is one of the largest international copper-producing companies in the world. It operates three copper mines in Northern Chile – Los Pelambres, El Tesoro and Michilla.

The financing structure comprises four tranches: a US$400mn commercial bank tranche; a US$400mn tranche from the Japan Bank of International Cooperation (JBIC); a US$200mn from Canada’s EDC; and a US$50mn facility from Germany’s KfW Ipex.

Pricing for the commercial bank tranche, EDC and KfW Ipex tranche is the same, starting at 275 basis points (bp) plus Libor before completion, rising to 300bp post-completion in years 1-3, increasing again to 350bp in years 4-9, and finally rising to 375bp after nine years.

On the JBIC tranche, pricing stood at 137.5bp pre-completion, rising to 250bp post-completion.

Strong sponsor support ensured that the five mandated lead arrangers felt comfortable joining the facility, but the deal was also syndicated out to the market, bringing in seven banks to participate on the US$400mn commercial bank tranche. The completion risk involved in the project was mitigated through a sponsor-provided debt guaranty.

Commodity price risk was another key concern, but this was mitigated with a cash sweep mechanism.

Commenting on the success of the deal, Sam Sherman, director, Latin America – project finance, Crédit Agricole CIB, remarks: “The financial market environment was clearly a challenge – as one would expect for a US$1bn-plus financing proposed in the teeth of the worst financial crisis in 80 years.

“Nonetheless, Antofagasta and Marubeni were able to count on anchor ECA lenders and a core of committed mining banks who know the sponsors and the Chilean mining environment very well from past transactions. As a result, it was clear from the start that the strengths of the Esperanza project – large deposit, first-class sponsors, synergies with the neighbouring El Tesoro mine – were such that a successful financial closing was not in doubt.”

Ananth Pharshy, project finance – originations, Mizuho Corporate Bank, remarks on the achievement of securing such a long tenor, despite the deal closing in a far more risk averse market. “Even as transactions in North America struggle to break the 7-10 year tenor barrier post-crisis, Esperanza’s tenor is sure to encourage project finance lenders in the Latin American region to return to more traditional longer tenor financings.

“The project also demonstrates how ECAs are helping sponsors to finance larger and larger projects without having to assume ‘execution risk’ in a financing environment where underwritten projects are a rarity.”

Total costs involved with the Esperanza project are US$2.5bn. In the first 10 years of operation, the project will produce an average of over 191,000 tonnes per year of copper contained in concentrates, as well as over 215,000oz of gold per year as a principal by-product. The project was initially funded by equity, and construction of the mine is already underway with production expected to start in the fourth quarter.
Deal information

 

 

Borrower: Minera Esperanza
Amount: US$1.05bn
Mandated lead arrangers and bookrunners: Crédit Agricole CIB (formerly Calyon), ING Capital, Mizuho Corporate Bank, SMBC, The Bank of Tokyo-Mitsubishi UFJ
Participating banks: Natixis and Santander
Sponsors: Antofagasta and Marubeni Corporation
ECAs/development banks: Japan Bank of International Cooperation (JBIC), Export Development Canada (EDC), KfW Ipex
Tenor: 11.5 years
Pricing: 275bp plus Libor up to 375bp
Law firms: Sullivan & Cromwell (sponsors); Milbank, Tweed, Hadley and McCloy (lenders)
Date signed: May 15, 2009