Energy & Infrastructure Insight - Issue 2

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LESSONS FOR OTHER MINE PROJECT FINANCING? The successful financing of the GAC Project is a reminder that, in an industry where novel financing structures such as royalty financing and streaming are increasingly favoured, large-scale, multi-sourced "traditional" project financing can still be the right approach for certain mining projects in Africa. This is particularly the case for projects where: • there is a well-proven mineral resource that has a history of being successfully extracted and marketed; • there is a robust offtake or marketing arrangement in place, backed by solid credit; • key infrastructure downstream of the mine is already developed, or is straightforward to develop or expand, without the need for significant, risky new-build work; • the sponsor is willing and able to start investing before the project financing closes, and to guarantee debt until satisfaction of operational reliability tests; • the sponsor does not need flexibility to dispose of the asset free of financing covenants; and • the business is able to accept the usual level of lender- driven operational oversight that project financing demands. It also shows that it is possible to successfully project finance a large development that relies on shared infrastructure (in this case, a railway operated by another mining company). In fact, this can be an advantage, if the alternative is to build costly standalone greenfield infrastructure. This lesson may be transferable to projects in other developing countries where there are not multiple routes to market. The key is that strong relationships of mutual co-operation are built and maintained among the users and operators of the shared facilities, and that the host government is also dedicated—both contractually and politically—to the success of the structure. It also highlights the importance of demonstrating a real commitment to environmental and social sustainability. This not only helps with attracting support from multilateral agencies, but also with relationships between the project and the political and social stakeholders in the host country. The sustainability credentials of a mining project need to be front and centre of the financing strategy, not merely a budget line item. Disclaimer: This article first appeared in Project Finance International. 7 FOR MORE INFORMATION PLEASE CONTACT: NICK BUCKWORTH Partner London T +44 20 7655 5085 nbuckworth@ DAN FELDMAN Partner Abu Dhabi T +971 2 410 8158 dan.feldman@ ANTHONY LEPERE Partner London T +44 20 7655 5518 anthony.lepere@ CLAIRE HUNTER Associate Abu Dhabi T +971 2 410 8176 claire.hunter@ CONCLUSION The GAC Project proves that there is real appetite in the debt financing market for African mining projects that have a sound, strategic business case, are well structured and are strongly supported by all stakeholders. The fact that lenders with very different mandates (multilateral development, export credit, and commercial) were able to join together shows the possibility of closing very high value transactions in this sector despite the relative infrequency with which it has occurred to date.

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