Financing mining

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The financing of mining infrastructure can be tricky. Jo Daniels at Baker & McKenzie explains

New mining projects, often located in remote regions, need infrastructure to transport commodities from mines to ports to sell to export markets. This “pit to port” infrastructure, which is usually rail, tends to be the most costly part of the ancilliary infrastructure such as power and water treatment plants, airports, mining camps and roads, that a project requires.

Examples of projects with such infrastructure include that in the Galilee Basin in Australia, where the project proponents include the Adani Group, and the Benga coal mine in Mozambique, which an Indian investment company, International Coal Ventures, recently purchased from Rio Tinto.

Debt is essential for pit to port projects. As appetite for risk has reduced since the financial crisis, banks tend to contribute less to the project cost and have reduced loan terms from 20 years to around five to seven years thus placing the refinancing risk on the project sponsor. Debt may take the form of loans sourced from domestic and international debt markets, secondary (mezzanine) finance from parties seeking to secure offtake or by issuing bonds on a stock exchange.

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Jo Daniels is a partner in the Brisbane office of Baker & McKenzie.

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Brisbane

T: +61 3 9617 4354

F: +61 2 9225 1595

Email: Jo.Daniels@bakermckenzie.com

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