  | |
| |
 |
|
| ||
Billions of dollars turn on Congo review Posted: Mon, 17 Sep 2007 [miningmx.com] -- BUMPING into David McKay at a results presentation can have unforeseen consequences, such as getting asked to write an interesting piece on “top-of-mind” mining issues – this when two world cups are ongoing! An additional difficulty in undertaking this task is the problem that my chosen field of banking (limited recourse financing in the mining sector) is almost certainly the biggest grudge purchase in the spectrum of financial products, involving incredible amounts of documentation, investigation, time and expense. For various reasons, political and economic, limited recourse or project finance was never a feature of mining finance in South Africa until fairly recently – as far as I am aware our lending to the then Avgold’s Target Mine was the first true project financing of a large new operation in this country. Since then, of course, this product has been more widely used in various applications and for different reasons. New junior and mid-tier entrants into our markets, and banks’ abilities to lend into African developments have led to increased project financing opportunities, and as the product is in essence a leveraging against future cashflows, its application in BEE transactions (albeit in hybrid form) is suitable in certain instances. In my view, however, real growth for big financing opportunities of this type exists north of our borders. As African countries continue to become more accessible, investor-friendly and (generally) less politically volatile, further large-scale mining ventures in these areas should continue to come on stream. In this context, whilst it has always been relatively easy to structure project financing for smaller, usually high-value commodity deals (specifically for gold projects), the exciting trend is the financeability of very large, bulk commodity projects. The re-invigoration of the Zambian Copperbelt bears testimony to this, evidenced by the raising of almost $600m of project debt for the $900m Lumwana Copper project. I believe it would have been impossible a few years ago for a single project junior company to have gotten this level of financing away. This indicates what is now achievable, and is particularly relevant to the string of enormous projects lining up for development in the DRC. In this regard, the recent commencement of the review process of all significant mining titles and agreements in that country is a seminal event. An interesting angle to this process (from what we hear) will involve the enlisting of an international investment banking team, amongst others, to assess the relative equitability of the economic benefits derived by all relevant parties to particular deals (the mining company, local communities, government, Gecamines etc). It will be very interesting to understand how these benefits are judged reasonable relative to international benchmarks and the specific risks assumed in each project and location. Also, will payments for concessions, and the fiscal and associated benefits granted be judged on today’s terms, or will the risk at the time of striking the deal be taken into account? Click Here to subscribe to our daily newsletter
| ||||||||
