Mines and Money Conference “Now that you’ve found it... How do you finance it?” NOW THAT YOU’VE FOUND IT... HOW DO YOU FINANCE IT? CHALLENGES AND OPPORTUNITIES IN MINING FINANCE 16 October 2012 David Lloyd Head of Natural Resources Project Finance Page 1
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Mine Financing: Now that You’ve Found It, How Do You Finance It? by David LLoyd, National Australia Bank
This was presented at Mines and Money Australia (www.minesandmoney.com/australia) in October 2012.
Now that you’ve found it, how do you finance it?
• Trends in the availability of funding for developing projects • What’s the right balance of equity, sub debt, and debt? • Financing: what are your options/existing & new financiers in 2012/13 • The government as your friend: ECAs and other pockets of capital
David Lloyd, Head of Resources, Project Finance, National Australia Bank
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Transcript
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
NOW THAT YOU’VE FOUND IT... HOW DO YOU FINANCE IT? CHALLENGES AND OPPORTUNITIES IN MINING FINANCE
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Australian Mining Finance - Who’s your financing partner? Page 7
NAB + 4 other Australian banks stable, building out capacity
12 – 15 core Aussie, Euro, Asian, South African banks still active in mining finance (-20%)
Chinese/Indian Banks support national client projects (Sino Iron: ~$5Bn-CDB; Lanco/Griffin: ICICI)
Increasing participation of local Asian Banks in financing cross-border mining transactions in Asian countries (Kingsgate/Thailand, Sakari Resources/Indonesia)
ECA involvement has become important/vital (“Mega”projects)
.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Loan
vo
lum
e (
US$
m)
Asia Pacific Mining PF
Asia Pacific Mining Project Finance
Source: Project Finance International
Mining Transaction Structural Elements:
• National/regional financing support from “franchise” connections
• Large club loans + larger “tickets” ($100m - $1 bn!)
• Preference to restrain tenor (< 7- 10 yrs)
• More equity, loan security, separate leasing, hedging as commodity prices retreat from peaks
• High interest margins, but increasing competitive pressure
• Non Bank complementary financing sources are important
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Complementary Financing: ECAs (continued)
14%
50%
0%
79%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2008 2009 2010 2011 1H2012
Mu
ltila
tera
l le
nd
ing
for
Pro
ject
Fin
ance
(U
S$b
n)
%
Multilateral lending for project finance
Developing Countries Other Developed Countries
Australia Developing as % of Total
Australia % of Developed
Source: Project Finance International
Page 9
JBIC (& NEXI) – Japan
$100bn MoF funding in 2011 to acquire resource/foreign assets
MoU with W.A. and QLD
Transactions: • $819m to fund Sony buyout of Sony Ericsson (2/12) • £1bn UK Intercity Express PPP PF (Hitachi trains) (7/12) • $211m to Osaka Gas to finance its share of Gorgon LNG
US EXIM
Tripled activity to over $32bn in 2011
Australia: $500k (2008) to $5bn (US EXIM forecast for 2012) • $2.95bn Australia Pacific LNG • $ (?) Roy Hill Iron Ore (Hochberg/US Exim – 8/12)
EFIC Australia
Support where a “market gap” exists: • $100m Export Finance G’tee in $3bn WICET financing (2011) • A$40.5m guarantee in $475m syndicated facility for Macmahon • $250m Export Finance G’tee in a $1.2b ECA facility for Santos
Other Australian ECA transactions
Energy Developments: A$28m NAB/Finnvera facility for Wartsila gensets at McArthur River zinc (10/12)
Hydro Tas/Guohua Energy: NAB arranging debt with EKF/Denmark participation for $395m Musselroe wind farm project (current)
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
How much does it cost? Higher (but overall lower) is here to stay … Lending margins declined substantially since 2009, but continue at very high levels:
base rates in US$ and A$ have fallen to more than compensate
Higher margins driven by: Higher bank capital (5-7% 9-11% Tier 1)
Higher bank funding costs (deposit competition, interbank funding risk, Basel III capital requirements) Pressure to optimise balance sheet use / limit loan books
Sources: Bloomberg, Markit
Page 13
0
500
1,000
1,500
Oct-07 Oct-08 Oct-09 Oct-10 Oct-11
Ind
ex
Val
ue
(b
ps)
iTraxx Corporate CDS Spreads
Asia Ex-Japan IG Asia Ex-Japan HY Europe IG Europe HY Source: Bloomberg
2007 IG ~50bps HY ~ 200-
300bps
Post GFC IG ~100bps HY ~ 400-
500bps
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
Oct-07 Oct-08 Oct-09 Oct-10 Oct-11
US$ LIBOR A$ BBSW
Base Rates (Interbank Borrowing Rates)
Source: Bloomberg
Source: Thomson Reuters, NAB internal sources
Historical Australian pricing trend
All-in borrowing costs are likely to be lower than your base rate in 2007
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Borrower St Barbara Ltd Facility A$120m (NAB hold AUD90m) Purpose Acquisition financing for the takeover of Allied Gold Mining Plc Financiers NAB (MLA and Lead Bookrunner) , European Bank (MLA and Co-Bookrunner) Facility Type Syndicated Facility Agreement Tenor 4 years Close Date Sep-12
NAB Recent Transactions Acquisition Finance
Page 14
Largest Syndicated Master Lease Facility in Australia
Borrower Fortescue Metals Group Limited (“FMG”) Facility US$965m (Oversubscribed +93.0%) Purpose Fund equipment related to expansion of mining operations in the Pilbara region of WA Financiers NAB plus several other banks Facility Type Syndicated Master Lease Facility Tenor 5 yr leases, 2 yr Availability (max 6 yr tenor) Close Date May-12
“Greenfield” Gold Project Development
Borrower Millennium Minerals Limited
Facility A$50m Project Finance + $8m Leasing
Purpose Construction and Term Loan funding to underpin development of the 1.5mtpa gold mine near Nullagine, WA
Financiers NAB and a European bank.
Facility Type Term Loan and Cost Overrun Facility, Gold Hedging Facility, Equipment & Accommodation Leasing
Tenor 4.5 years door-to-door. 1.5 years construction, 3 years term.