Rabobank and Banco Espirito Santo (BES) closed a US$55mn club prepayment structure in favour of Erdenet Mining Corporation in Mongolia in May 2009. The involvement of Ocean Partners, a trading company with expertise in the mining industry, was also inherent to the success of the transaction.

Although a classically structured trade transaction, the deal stands out as it heralded the return of Erdenet to the market after a number of years of absence. Not only that, the transaction involved two banks who had never previously done business in Mongolia, and yet had enough appetite for new risk to structure and close the deal in an extremely challenging market environment.

Closing in May last year, when liquidity was perhaps only slowly creeping back to the market, this transaction potentially helped open up the Mongolian market to other lenders and investors.

“With the advent of some large-scale mining developments in Mongolia in the coming years, this deal has raised the profile of Mongolia as a significant metal/mineral producing country at an opportune time,” comments Paul Lodwick, director, metals & minerals, EMEA and South America at Rabobank, based in London.

The loan is structured as a prepayment facility, with Rabobank contributing US$42mn and BES contributing US$13mn. The financing will be used to refinance part of Erdenet’s extensive capital expenditure programme carried out over the past three or four years.

Rabobank’s Lodwick further comments on the qualities of the deal structure: “It is perhaps the simplicity of the transaction which sets it apart. It’s a genuine trade-related facility which is repaid through the delivery of goods to a real offtaker (Ocean Partners).

“It’s also highly relationship driven. Not only did it enhance the already strong bond between Erdenet and Ocean Partners, but the good relationship with our client (Ocean) was key to getting the deal through in the first place.”

David Wightman, director – structured trade finance, BES, adds: “The opportunity of working with Ocean Partners and Rabobank on the two Erdenet transactions arranged in 2009 was an excellent introduction of this name to BES where we are interested to work closely with trade flows connected with China.

“Erdenet is a very reliable producer of copper concentrates and, in combination with the highly experienced management of Ocean Partners and the thorough working knowledge of the staff at both Rabobank and BES, it was possible to close both transactions within the tight deadlines required by Erdenet.”

Erdenet Mining Corporation is a Mongolian-Russian joint venture, with 51% of shares owned by the Mongolian government and 49% by the Russian government.
Deal information

Borrower: Erdenet Mining Corporation
Amount: US$55mn
Mandated lead arrangers: Rabobank, Banco Espirito Santo
Law firm: Denton Wilde Sapte
Tenor: 12 months
Date signed: May 2009