Jan 08, 2012 (The Arizona Daily Star - McClatchy-Tribune Information Services
via COMTEX) -- The parent company of Rosemont Copper is seeking $404 million in
construction loans for the Rosemont Mine project from government-backed
export-import banks and credit agencies in Europe and South Korea.
Export-import banks in Denmark, Switzerland and Germany as well as Korea are
negotiating final terms and conditions for loans with Augusta Resource Corp.,
said Gil Clausen, Augusta's president and CEO.
Augusta owns the 900 acres of private land in the Santa Rita Mountains southeast
of Tucson on which the proposed billion-dollar mine would be built.
The company hopes to conclude negotiations and get loans approved by April. Its
officials don't expect to draw upon this money until ground is broken and
construction starts on the mine, Clausen said in an interview.
The company listed the export bank loans as one of several sources of financing
for the Rosemont project in an investor presentation last month that is on
Augusta's website.
The company says it has obtained about $500 million from various investors in
the form of equity financing, which does n ot carry debt, and hopes to obtain the
rest through debt financing.
Augusta and Rosemont Copper have said they hope to start mine construction this
year, but that depends on obtaining six key local, state and federal permits for
the project and on whether any of those approvals are held up in the courts.
"We've gone through the initial credit reviews and everything like that with
those agencies," Clausen said of the export-import banks. "These banks are not
concerned about this (permit) process at all. They understand exactly what this
process is. They do their due diligence on it ... they understand there is some
flexibility with respect to timing."
Interest in Denmark
Augusta and Rosemont officials declined to reveal the names of the export-import
banks from which the company is seeking loans. It is company policy to not
disclose details of potential commercial transactions until they are completed,
said Rosemont Co pper President and CEO Rod Pace.
The Star contacted export-import banks in each of the countries involved. Only
two responded and neither said they are currently negotiating with Augusta or
Rosemont.
In Denmark, the company EKF, which doesn't lend but does guarantee other
parties' loans, said it had stated in February 2010 that it would interested in
investigating the possibility of guaranteeing financing for Rosemont Copper if
presented with an application.
But, "we have not subsequently received an application," said Ole Lindhardt, a
senior communications consultant for EKF.
Thomas Krick, an official of the German export bank KFW, said, "Of course we
know the project. It is very interesting." But the German company has no
contractual relationship with Augusta today, he said.
ENVIRONMENTAL STUDY
It's possible that the company's loan applications may require environmental
reviews of the controversial mine p roject.
The Organization for Economic Cooperation and Development, a 34-nation group
seeking to promote global development, has a series of environmental standards
for loans made or guaranteed by government-backed export credit agencies --
another name for these banks. The United States, many European nations and South
Korea are all members.
They require that any major "Category A" project -- a category that specifically
includes an open-pit mine like Rosemont's -- submit an environmental analysis.
The organization, commonly known as OECD, requires that export credit agencies
ensure that they address "any potential environmental and/or social impacts of
the supported project."
Export credit banks provide either loans or guarantee loans made by other credit
institutions. They can offer lower interest rates than conventional banks, or,
when they are government-backed, can offer access to credit that companies might
not othe rwise be able to get.
They're typically created to promote exports from their own countries. In the
case of Augusta, the company hopes that the export banks in the other countries
will loan it money in return for the Rosemont Mine's purchase of goods or
services from the foreign country.
Standard practice
The Korean bank is getting involved in the project because Rosemont has already
agreed to ship 30 percent of its copper concentrate to Korea under a long-term
contract, Clausen said.
Augusta will be getting a loan from a German bank under an arrangement in which
the mining company will send some of its product to a German smelting company
for smelting, Clausen said. A Danish company will supply major crushers and
mills to the Rosemont mine, and a Swiss company will be providing a lot of gear
for the project, Clausen said.
The OECD has seen an increase in this kind of export credit support provided by
its expor t-import banks over the past two years that might have been supported
by private sector banks before the financial crisis of 2008, the OECD told the
Star in an email.
But Colorado School of Mines mineral economist Graham Davis said it's pretty
standard practice for mining companies to go to a lot of different lending
sources, including export-import banks and credit agencies, regardless of the
global financial situation.
"The higher the metal price is relative to the norm, the easier the credit is,"
said Davis, a Colorado School of Mines professor of economics and business. He
served as an expert witness for Augusta during an unrelated lawsuit involving
the company's purchase of the mine property several years ago from the mining
firm Asarco.
"Credit is pretty easy now with metal prices high," Davis said.
Borrowing plan at odds with '09 study
Augusta Resource's effort to seek $400 million in loans from foreign
export-import banks for the Rosemont Mine represents a change from what a
Rosemont consultant said in a 2009 feasibility study about the mine.
That study, submitted to the British Columbia Securities Commission as a
required document, predicted the mine would get "100 percent equity financing"
without borrowing money.
Augusta CEO Gil Clausen downplayed the significance of this change, saying the
consultant, M3 Engineers, typically assumes all-equity financing in these kinds
of studies it does for all companies. When the company does studies comparing
these projects, it uses similar research methods involving the price of metals
and the financing.
"They make the assumption the project will be funded by cash. They don't care
whether the money comes from the sale of stock or cash off your balance sheet,
and then all around can be compared against each other on the same basis," said
Clausen, adding that Vancouver, B.C- based Aug usta always planned to borrow
money for part of its financing.
Such studies are required for mining companies trying to sell securities in
British Columbia, said Richard Gilhooley, a securities commission spokesman.
They must provide technical reports and other kinds of financial information
from a qualified expert, Gilhooley said.
Graham Davis, a Colorado mining economist with a past legal tie to Augusta,
essentially agreed with Clausen, saying that the method of financing a mining
project is not a major factor that investors use to evaluate it. Copper prices
and ore grade matter more.
Disagreeing was Renate Kloppinger, a former World Bank official with 25 years
experience reviewing loans for mines and other projects. She has spoken against
the Rosemont Mine at a recent public hearing on its environmental impact.
Kloppinger, who recently moved from Washington, D.C., to Sonoita, said that the
2009 study's prediction o f 100 percent equity financing shows that it was
"totally unrealistic."
"I don't know of any company that is 100 percent equity financed," said
Kloppinger, who also was a vice president for Citibank in New York City and
German Deutsche Bank. "It makes the numbers in the study look better to put it
that way. It shows you don't have interest expenses."
Contact reporter Tony Davis at tdavis@azstarnet.com or 806-7746.
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