This is the first project financing in Argentina since the 2001 financial crisis. It's also the first export-credit agency (ECA) transaction in the country since then as well as the first political risk insurance programme for Argentina in over three years.
That alone would ensure that the $250 million financing of the Veladero mine would be considered a great achievement. But to top it all, the sponsor persuaded the government to issue a decree overturning some restrictions put in place since the crisis in order for the transaction to go ahead.
Veladero is an open pit gold mining operation in the north-west of Argentina, in the Andes. It has proven and probable gold reserves of 11.1 million ounces, with another 1.5 million ounces of measured and indicated resources. Annual production is expected to average 700,000 ounces of gold a year at an average total cash cost of $200 an ounce for the first three years.
But the mine's development would not be possible without the persuasive powers of backer Barrick Gold. Following the financial crisis, the Argentine government implemented foreign exchange and other economic restrictions for non-local companies. Barrick, however, was able to convince President Kirchner to exempt all mining companies that file qualified feasibility reports under the Argentine Mining Investment Law from those restrictions.
The decree, which was supported by various levels of the government, was crucial in garnering foreign investment for the project. Another important feature of the transaction was the creation of an offshore account structure. The equipment and services bought with the loan will be used by a special purpose vehicle, Minera Argentina Gold.
This was enough to convince US-Exim bank to participate in the transaction, even though Argentina is still off-cover to the bank. US-Exim provided an $80 million loan. Another $60 million was lent by Export Development Canada (EDC), while KfW, the German agency, provided $10 million. The rest was raised through a commercial loan.
The debt has a tenor of nine years (seven years plus construction), and terms are shared across all tranches. The commercial bank debt features political risk insurance from EDC. The lead arrangers on the commercial debt are ANZ, Fortis, KfW and RBS, each providing $25 million. Milbank Tweed advised the lenders, while Sullivan & Cromwell advised the sponsor. The engineering, procurement and construction contractors are SNC Lavalin and Techint.
Barrick Gold is a Canadian company with 12 operating mines in North America, Australia, Africa and Latin America. Last year these mines produced about five million ounces of gold, at a cash cost of $212 per ounce, the lowest cash cost of all senior producers. The company increased its reserves by over three million ounces in 2004, with gold mineral reserves of 89 million at the end of the year. Barrick has the gold industry's strongest balance sheet, and its shares are traded on five bourses around the world.
Borrower: Veladero Mine
Amount: $250 million
Sponsor:
Date:
Private lenders: US-Exim; Export Development Canada (EDC); KfW
Lead arrangers: ANZ, Fortis, KfW, RBS