mine financing: now that you’ve found it, how do you finance it? by david lloyd, national...
DESCRIPTION
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 BankTRANSCRIPT
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
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Global Financial Markets Recovering but fragile... Banks have been returning to the market although at lower levels than 2007...
Mining finance has been relatively robust.
4.6
11.5
4.1
10.9 11.2
2.4
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 1H2012 G
lob
al M
inin
g P
roje
ct F
inan
ce U
S$b
n
Project Finance in Mining Sector Globally
Non-Recourse Project Bond Project Finance
Source: Project Finance International
Page 2
Global capital raising 2007-2012
Source: Bloomberg, KPMG
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Divergence in Regional Outlooks:
Issue Divergence in regional economic and financial outlook has changed traditional sources of capital.
Europe
Eurozone uncertainty continues…. • Eurozone growth forecasts fall to -0.4%/2012 and
+0.2%/2013 (IMF – 10/12)) • 90% likelihood of Greece leaving Eurozone (Citi -7/12) • EU Banks raise E200 bn fresh capital in 2012 (EBA-10/12) • Bank balance sheet constraint/deleveraging to continue
North America
US stable but weak …. • Growth forecasts 2.2%/2012 and 2.1%/2013 (IMF) • US major banks largely recapitalised, but exposed to weak
real estate, investment banking sectors • Cautious, constrained outlook
Asia Decelerating growth, as external demand weakens…. • China growth forecast to rebound from 7.8% to 8.2% as
investment picks up (IMF) • Japan forecast to fall from 2.2% to 1.1% as Fukushima
reconstruction completes (IMF) • Japanese banks limited exposure to GFC, bolstered capital
with new equity but face weak domestic economy/profits
Australia Resources Investment boom strong, but peaking …. • Growth forecasts 3.3%/2012 dropping to 3%/2013 (IMF) • Banking sector limited exposure to subprime assets,
derivatives, and Euro zone sovereigns • Banks strong capital base, record profit levels, Basel 3
prepared
S&P Ratings Update (October 2012): 14 “AA-“ Rated Banks (Market Cap>$20bn)
- 4 Australian - 3 Canadian - 3 Singaporean - 3 European - 1 Hong Kong
Source: S&P, Bloomberg
0
100
200
300
400
500
600
bp
s
Bank CDS Spreads by Region
French UK Spanish Euro Asian Australian
Source: Bloomberg
Australia & Asia
Europe
Page 3
10 “AAA”/ “AA-” Banks }
interrelated bank-sovereign ratings
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Australian Banking Market: Relatively Robust
Strong Growth in the Australian Loan market over last 7 years
Punctuated by GFC, but near record level resumed in 2011 driven by lower credit margins and refinancing activity
Q3 2012: $55b total with $8-10b pipeline. Base level of $50-60bn supply, high demand
Aussie PF Market currently #1 in global rankings (1H2012)
Compared to other OECD markets, Australia has resilient credit and investment demand with adequate available financial sources
Page 4
.0
20.0
40.0
60.0
80.0
100.0
120.0
2005 2006 2007 2008 2009 2010 2011 1H2012
Loan
Vo
lum
e (U
S$b
n)
Australian Syndicated Loan Market
Total volume (US$m) Source: Thomson Reuters
9.8%
19.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H2012
Au
stra
lia %
of
Glo
bal
PF
loan
s
Glo
bal
PF
loan
s (U
S$b
n)
Australian Project Finance Market
Australia Australia % of Global PF market Source: Project Finance International
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Where is the money? Changes in Composition of Bank Financing
In a relatively strong finance market, the composition of Australian debt finance sources has been changing:
NAB + other Australian banks supportive
European bank retreat continues
Asian Banks diversify (Japan, +Singapore, +China)
North America recovers (+Canada)
Page 5
106
66
51
60
104
44
52%
60%
30%
10%
3%
16%
11%
6%
20
40
60
80
100
120
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 1H2012
Loan
vo
lum
e U
S$b
n (
bar
gra
ph
)
Per
cen
tage
mar
ket
shar
e (l
ine
grap
h)
Total volume (US$m) Australia % Europe %
Asia % North America %
Source: Thomson Reuters, NAB
Australian (%)
Asian (%)
Europe (%)
N.A (%)
Australian Syndicated Loan Market Share By Lender's origin
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Who’s your Finance Partner, Australia?
Australian Banks
• Big 4 Australian banks among only 14 in the world rated “AA-” by S&P (mkt cap >$20bn)
• Record operating earnings/strong Tier 1 capital (ratios between 9.4%-11.1%)
• Little/nil exposure to Euro sovereign/subprime/leveraged/credit derivatives/
• Healthy balance sheet capacity, but dependent on offshore wholesale funding.
International Banks traditionally, but
• Deleveraging triggered partial Deglobalisation - banks focus limited capital on:
“home” markets (e.g. Europe: RBS, HBOS, Dexia, UniCredit, Natixis, SocGen, etc)
“core” clients – relationships and product cross-sell necessary to access credit
Asian/North American Banks: expansion, but limited to “franchise” links.
International projects: cross-border “orphans”?
• Regional Lenders –reduction in “global” lenders
• Multilaterals and ECAs
Page 6
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 - $1 bn!)
• Preference to restrain tenor (< 7- 10 yrs)
• More equity, loan security, separate leasing, hedging as commodity prices retreat from peaks
• High interest margins, but increasing competitive pressure
• Non Bank complementary financing sources are important
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Complementary Financing: Export Credit Agencies (“ECA”)
US Exim authorised a total of USD 32.7b
backing over 3,751 transactions in 2011
ECAs are now playing an important role in the global – and Australian - financial markets
0
50,000
100,000
150,000
200,000
250,000
2007 2008 2009 2010 2011
MLT
(U
S$m
)
Berne Union ECA Totals
MLT New Business - insured during each year Source: Berne Union
Source: www.exim.gov
ECAs Increased to over $190bn
in 2011 ECA’s
PRE-GFC NOW
Purpose
- Support domestic employment - Tied to exports
- National interest, resource security - Fill funding “gaps” - Untied / Relaxation of credit
Markets
- “Developing” countries - Africa, Asia, Latin America
- Broad global mandate - Developed countries
Transactions
- Export support - Outbound Investment - Insurance / G’tees
- Inbound / Outbound - Direct Loans, equity support
Growth in US-EXIM Bank Authorisations
US-Exim tripled authorisations
over 5 years
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Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Complementary Financing: ECAs (continued)
14%
50%
0%
79%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2008 2009 2010 2011 1H2012
Mu
ltila
tera
l le
nd
ing
for
Pro
ject
Fin
ance
(U
S$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?”
Advantages of ECA Funding Page 10
Benefits of ECA Funding
Access on the basis of a link to that ECA country; equity investments, off-take agreements and/or
procurement of major plant and equipment
Benefit Detail
Tenor • Up to 18 year tenor (including construction) for projects with long offtake contracts
Pricing • Favourable pricing in view of the longer tenor
Certainty • Greater funding and pricing certainty for the Project (reduces refinancing risk)
Terms • Prepared to accept terms and conditions acceptable to Domestic Bank
Funding Diversity • Diversity of funding sources
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Non Bank Financiers: filling the gap
11
A. Debt Capital Markets/Bonds – ‘Strong issuance’
Primarily investment grade: ~US$1 Trillion deep market; ~45bn Aussie global new issuance
Sub Investment grade (most mining companies): Hi Yield/Private Placement/Term Loan “B”
• More expensive and volatile; less restrictive, longer tenor (“beware the speed bumps”)
• Fortescue $4.5bn TLB (10/12), Ausdrill, Mirabela, Atlantic/Windimurra, Boart Longyear
Convertible Bonds: Strong demand for new A$/US$ issues (~35% premium /~5% coupon)
B. Offtakers/Trading Companies – Glencore, Trafigura, Noble, Japanese, Korean
Straits Resources/Glencore – Equity Underwrite + $20m W/C facility w/copper offtake for Tritton (7/12)
Lynas Corp/Sojitz & JOGMEC (Japan) - $225m term loan w/8,500 tpa Rare Earths Distribution and Agency agreement (2011)
C. Royalty/Metal Investors: Franco Nevada, Royal Gold, Sandstorm
Thompson Creek Metals: $781m of C$1.5bn Mt Milligan Copper/Gold Project Capex financed by sale of 52% gold production to Royal Gold (2011/2012)
Metal Investors: Red Kite: Allied Gold $80m gold “prepayment” loan (Jan’/12)
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Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Non Bank Financiers: filling the gap
12
D. Multilaterals, Bilaterals, - complement commercial bank financing.
KfW/EDC/KDB – “Emerging Markets” but bilaterals support national interest clients in OECD countries (eg: financed Wiggins Island C.E.T)
E. Equipment vendors – Cat Financial, Siemens, Samsung C & T
F. Investment Funds –
Focus on Hi Yield/Distressed: Mezz/”vulture” funds
Senior Debt ?
Page 12
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
How much does it cost? Higher (but overall lower) is here to stay … Lending margins declined substantially since 2009, but continue at very high levels:
base rates in US$ 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.
Close Date Mar-12
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
Project Finance
David Lloyd Head of Natural Resources, Project Finance +61 2 8220 5365 [email protected]
Key Contacts NAB Resources Contacts
Institutional Banking
Brad Calleja Head of Institutional Banking, WA +61 8 9441 9431 [email protected]
Stuart Glen Head of Institutional Banking, QLD +61 7 3234 5021 [email protected]
Omer Molad Director, Natural Resources, VIC +61 3 8641 5766 [email protected]
Matthew Sandham Director, Natural Resources, NSW +61 2 9237 9419 [email protected]
Kevin Jamieson Director, Natural Resources, WA +61 8 9212 7830 [email protected]
Julia Hinwood Director, Project Finance & ECA +61 3 8641 3352 [email protected]
Simon Esposito Director, Project Finance +61 3 8697 7398 [email protected]
Stewart Findlay Director, Project Finance - WA +61 8 9441 9273 [email protected]
Andrew Wright Managing Director, Institutional Banking +61 3 8641 4193 [email protected]
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Asset Finance & Leasing
Greg Hampton Head of Asset Finance & Leasing +61 2 8220 5304 [email protected]
Markets
Henry Walsh Global Head of Commodities +61 2 9237 1092 [email protected]
Jonathan Baker Head of Corporate & Institutional Markets FX +61 2 9237 1313 [email protected]
Mines and Money Conference “Now that you’ve found it... How do you finance it?”
National Australia Bank
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