Page 1CHALLENGES OF FINANCINGTHE RESOURCES SECTOR: 2012 TO 2014“As Clouds Gather”10 October 2011                          ...
Page 2In October 2007…Before the Storm – Bank Capital Dominant    A. Banks (~75% of total capital)    B.    Capital Market...
Page 32008-2010: The Perfect Credit Storm & The Aftermath     2010:“Once in a century credit tsunami”– Alan Greenspan, Oct...
Page 4R-evolution of Financial Markets  evolutionBankers have been returning to the market although at lower levels than 2...
Page 5 Yes, But Banks Only Part Way Through:Issues                          2011 2012                    Sovereign uncerta...
Page 62012 to 2014: Uncertain Global Climate•   Financial system unstable – Euro and US banks (BofA, Citi, WF downgraded 9...
Page 72012 to 2014: Uncertain Climate – Banks and Resources Finance   Challenging and deteriorating                       ...
Page 8As Clouds Gather: Who’s your Finance PartnerAustralian Banks• Big 4 Australian banks among only 14 in the world rate...
Page 9 As Clouds Gather: Loan StructureCredit Rules! – stronger risk controls: More security                              ...
Page 10As Clouds Gather: Margins and FeesHave declined substantially since March 2009, but will continue at historically h...
Page 11Recent TransactionsMillennium Minerals Pty Ltd                                                   JUNIORA$25m Syndic...
Page 12 Funding Competition A look into the future                                                                        ...
Page 13Project Timeline – Major Global Project PipelineA look into the future                        $2.9Bn               ...
Page 14ECA FinancingA Source of Liquidity• In the current context ECA’s represent a significant potential source of liquid...
Page 15ECA FinancingWhat volume of funding can be sourced from ECAs? Tied V Untied • As a general rule, for Tied financing...
Page 16Capital Markets ConsiderationsCapital markets are strong supplementary funding sources as competition for funding a...
Page 17Capital Markets ConsiderationsCurrent volatile market conditions limit the availability of capital markets that can...
Page 18Alternative Funding SourcesAn expanded role for EFIC? EFIC • Established to support Australian export trade by prov...
Page 19Alternative Funding SourcesEasing the Infrastructure bottleneck – Asking the hard questions                        ...
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Challenges of financing the resources sector - presented at www.minesandmoney.com

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Where to from here: Outlook for banks in 2012-14 and implications for mining finance

Exploring alternative sources of funding


David Lloyd, Head of Resources, Project Finance – Global Specialised Finance, NAB

Dave Roberts, Managing Director and Head of Infrastruture and Natural Resources Advisory

Published in: Economy & Finance, Business
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Challenges of financing the resources sector - presented at www.minesandmoney.com

  1. 1. Page 1CHALLENGES OF FINANCINGTHE RESOURCES SECTOR: 2012 TO 2014“As Clouds Gather”10 October 2011 David Lloyd Head of Natural Resources Project Finance Fabian Fuentes Associate Director Infrastructure and Natural Resources Advisory Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  2. 2. Page 2In October 2007…Before the Storm – Bank Capital Dominant A. Banks (~75% of total capital) B. Capital Markets Convertible Bonds (Sub debt) Bonds (Senior Debt) C. Offtakers/Trading Companies D. Equipment vendors, Royalty investors E. Multilaterals, Bilaterals, Export Credit Agencies , F. Domestic Banks Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  3. 3. Page 32008-2010: The Perfect Credit Storm & The Aftermath 2010:“Once in a century credit tsunami”– Alan Greenspan, October 2008 The Perfect Credit Storm (2008/09) After the Storm (2009/10) • Subprime Mortgages • Financial system starting to stabilise (recapitalisations, government guarantees,, • Leveraged Finance (“Cov Lite”) return to commercial banking ) • Credit Derivatives • Improvement in bank operating profitability • Lehman/AIG Exposure (record levels, but pre-provision) • Real Estate exposure • Equity markets up ~60% (@ 80% pre GFC • Economic Recession level) • Sovereign Collapse: • Commodity prices rebound (+80-100% Iceland/Hungary/Ukraine/Pakistan trough to peak) Need for bank Recapitalisation • Asset prices recovered (U.S. “Junk” Bonds Interbank funding freeze 55% 99%) (4/10) • Global growth: -1%, 2009 5% 2010 Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  4. 4. Page 4R-evolution of Financial Markets evolutionBankers have been returning to the market although at lower levels than 2007... Sources: Bloomberg, Capital IQ, Thomson Reuters Project Finance International Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  5. 5. Page 5 Yes, But Banks Only Part Way Through:Issues 2011 2012 Sovereign uncertainty and bank downgrades Interbank market freezeEuropean 2011: Bailouts for Irish banks reach €100bn totalBankProblems Aug 2011: Greece’s two largest lenders merge Sept 2011: French banks downgraded/assets selldown UBS US$2.3bn rogue trading loss/CEO resigns Oct 2011: Franco-Belgian lender Dexia bailout 2011/12: Further recapitalisation of banks? “CDS numbers count against banking system”, Financial Times Oct. 4 2011Known Continuing Euro sovereign uncertainty‘Unknowns’ • Greece misses 2011 deficit target • ECB purchased €160b in sovereign bonds since May 2010 160b • Germanys 10 biggest banks may need €127bn for banks 127bn total capital ratio to rise to 5% (DIW – 9/11) • IMF report says EU banks need €200bn Sovereign debt downgrades of US, Japan, NZ, Greece, Italy, Spain, Portugal, Ireland Spillover Effects to Europe? Who is next? Break up of the Euro? Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  6. 6. Page 62012 to 2014: Uncertain Global Climate• Financial system unstable – Euro and US banks (BofA, Citi, WF downgraded 9/11) in particular• Extreme volatility in equity, commodity and currency markets (VIX up 160%)• Sept 2011 - worst quarter for Equity markets since GFC (FTSE All All-World index down 18% for Q3)• Falls in commodity prices (Reuters-Jefferies CRB index down 11% for Q3) Jefferies• Economic growth – China in driving seat but can it contain inflation and boost domestic demand?• Global growth: IMF reduces 2011/12 forecast to 4 percent (5% in 2010) FTSE All World index -18% in Q3 Reuters-Jefferies CRB index -11% in Q3 Chinese manufacturing activity slowed in September (-1%) for the third month in a row. India’s HSBC Markit Business Activity Index (-7%) Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  7. 7. Page 72012 to 2014: Uncertain Climate – Banks and Resources Finance Challenging and deteriorating 300 Bank CDS Spreads NAB + 4 other core Australian banks stable 250 12 – 15 Euro, Aussie, Asian + Euro banks still active ( (- 200 20%) 150 Increasing participation of Asian Banks in international 100 markets (Singapore, Thailand, Indonesia) 50 Chinese/Indian Banks - Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 ECA involvement will increase Australia Asian French, Uk, European SpanishTransactions• National/regional financing support• Club loans + Larger ‘tickets” ($100m+)• More equity, loan security, hedging• Continued higher margins “Financial Institutions stare into the abyss”, Financial Times• Alternative financing sources September 22, 2011 Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  8. 8. Page 8As Clouds Gather: Who’s your Finance PartnerAustralian Banks• Big 4 Australian banks among only 14 in the world rated “AA” by S&P• Record operating earnings/strong Tier 1 capital (ratios between 9.4% 9.4%-11.1%)• Little/nil exposure to Euro sovereign/subprime/leveraged/credit derivatives• Balance sheet capacity/wholesale US$ funding?International Banks traditionally but• Partial Deglobalisation - banks focus limited capital on: “home” markets (e.g. Europe: RBS, HBOS, Dexia, UniCredit, Natixis, SocGen, etc) “core” clients – relationships are important to access creditInternational projects: cross-border “orphans”? Multilaterals and ECA’s borderHow much will they lend?• Limited underwriting, larger final holds ($100 ($100-500m) club loans prevail Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  9. 9. Page 9 As Clouds Gather: Loan StructureCredit Rules! – stronger risk controls: More security 11x More equity, less debt/gearing (debt: EBITDA 9-11x 3-5x) Higher debt coverage ratios (LLCR, PLCR, DSCR) Full subordination, if any mezzanine debt More hedging: irs, fx and commodity (Banks: – risk, + earnings)Basel III: higher bank capital and liquidity requirements higher cost of funding Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  10. 10. Page 10As Clouds Gather: Margins and FeesHave declined substantially since March 2009, but will continue at historically high levels: 2007 Post GFC IG ~100bps IG ~50bps HY ~ 400- HY ~ 200- 500bps 300bps Driven by higher bank capital (5-7% 9-11% Tier 1) 11% Continued higher funding costs (deposit competition, interbank funding risk, Basel III capital requirements) Stronger credit risk/return calculations – lower risk, better pricing Pressure to reduce balance sheet use / declining loan books Sources: Bloomberg, Markit Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  11. 11. Page 11Recent TransactionsMillennium Minerals Pty Ltd JUNIORA$25m Syndicated Loan Facility, A$10m Performance Bonding and A$10m Leasing FacilityPurpose: Development of Nullagine Gold Mine Key Transaction HighlightsLenders: BNP Paribas, National Australia Bank Limited • Millennium Minerals first bank debt facility Syndicated Loan Facility (A$25m) , Performance Bonding • Comprehensive project financing packageFacility Type: Facility (A$10m), Leasing Facility (A$10m), Gold Hedging plus gold hedgingTenor: 3 yearOZ Minerals Group Treasury Pty Ltd MID TIERUS$180m Revolving Syndicated Loan Facility and US$20m Working Capital FacilityPurpose: General corporate purposes Key Transaction HighlightsLenders: National Australia Bank Limited, Westpac, ANZ, HSBC • OZ Minerals’ first bank debt facility since the GFC Revolving Syndicated Loan Facility (US$180m) and • NAB Facility Coordinator and AgentFacility Type: Working Capital Facility (US$20m) • Reinforced NAB’s position as leading financier to theDebt Size: 1 year US$20m resource sector and #1 loan syndication bank in Australia 3 year US$180mWiggins Island Coal Export Terminal Pty Ltd LARGEUS$2,850m Senior Secured Project Finance Facility, A$50m Working Capital Facility, A$150m Letter of Credit FacilityPurpose: Project Finance Key Transaction Highlights National Australia Bank Limited, ANZ, BoC, CDB, DBS, • Largest Australian greenfield Project FinanceMLA: SMBC, KDB transaction for 2011 US$2,850m Senior Secured Project Finance Facility, A$50m • NAB is a Mandated Lead Arranger and soleFacility Type: Working Capital Facility, A$150m Letter of Credit Facility spot FX dealer for A$1.7761bn. • Fourteen banks plus five development/export credit agencies (ECA) Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  12. 12. Page 12 Funding Competition A look into the future Top Australian Projects• Currently there are over 400 global Greenfield mining projects earmarked for Base Case Company Commodity Potential Start Production development by 2020 requiring up to US$500Bn of funding Year (mtpa)• Australia accounts for more than a quarter of these developments with an Solomon Fortescue Iron ore 2013 60 estimated funding requirement of $US145Bn Roy Hill Hancock Iron Ore 2014 55• The resources boom will place a significant strain on banks balance sheets with Prospecting projects forced to compete for funding. Wandoan Xstrata, Itochu, Thermal Coal 2011 30 Project Sumisho• This competition for funding will be further exacerbated by the introduction of Basel III as banks are forced to meet tougher capital adequacy requirements. Alpha Coal Hancock Thermal Coal 2014 30 Project Prospecting• Capital markets and Export Credit Agencies are likely to play a more Kevin’s Corner Hancock Thermal Coal 2013 30 significant role in the financing of Australia’s resources sector though this will Project Prospecting still require intermediation from commercial and investment banks China First Coal Waratah Coal Thermal Coal 2014 30• Sponsors will also seek to attract cheap Chinese financing on the back of Project strategic investment by Chinese Sponsors or through significant offtake or West Pilbara Aquila Iron Ore 2013 30 procurement contracts Project Resources 120 Eagle Downs Aquila Coking Coal 2013 8 Number of Projects by Region 100 Project Resources, Vale 80 Belvedere Vale, Aquila & Coking Coal 2014 8 Project AMCI 60 Wingellina Metals X Nickel 2014 NA 40 Barnes Hill Proto Resources Nickel 2013 NA 20 Karara Gindalbie Iron Ore 2011 NA 0 Marillana Brockman Iron Ore 2010 NA Mozambi… South… Peru Mexico Philipines Other Indonesia Argentina Mongolia USA PNG Australia Russia Brazil Chile Canada DR Congo Kazakhstan Project Resources Washpool Aquila Hard Coking 2012 NA Source: Brook Hunt Project Resources Coal Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  13. 13. Page 13Project Timeline – Major Global Project PipelineA look into the future $2.9Bn $37.4Bn $18.1Bn $14.7Bn $4.0Bn •Rio Blanco Copper •China First Coal •Panantza Copper Panantza •Donlin Creek Gold •Resolution Copper •Esperanza Copper •Las Bamabas Copper •Tampakan CopperEl Tampakan •Pebble Copper •Alpha Coal Pachon Copper •Roy Hill Iron Ore •Cerro Colorado Copper Cerro •West Pilbara Iron ore •Quellaveco CopperWafi Quellaveco CopperWafi- Golpu Copper/Gold •Mbalam Iron Ore2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 •Crosslands Iron Ore •Cobre Panama CopperGrosvenor Cobre Coking Coal •Boikarabelo Thermal Coal •Simandou Iron Ore •Maules Creek (semi soft coal) •Toromocho Copper •Wandoan Coal •Frieda River Copper •No significant projects •Benga Thermal Coal •Oyu Tolgoi Copper •Kevins Corner Coal •La Granja SxEw Copper currently planned $2.6Bn $6.2Bn $33.3Bn $6.0Bn Global growth projects by number Commodity Metric Greenfield Current Greenfield as % of Thermal Coal, Supply Supply current supply 11% Copper Kt 8978 20387 44% Iron Ore Mt 649 1009 64% Copper, 25% Coking Coal, 4% Nickel Kt 1323 1559 85% Uranium, 3% Iron Ore, 9% Gold Moz 27.5 130.9 21% Gold, 33% Coking Coal Mt 103 247 42% Nickel, 15% Thermal Coal Mt 278 663 42% Source: Brook Hunt Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  14. 14. Page 14ECA FinancingA Source of Liquidity• In the current context ECA’s represent a significant potential source of liquidity for large Case Study – Pluto LNG Project projects. ECA’s support is based on national economic interests and not on profitability • JBIC approved loans in co-financing with private prospects financial institutions in the aggregate amount of• ECA financing can provide a key financing bridge for large projects where bank funding may US$1.3bn for the Pluto LNG Project in 2008, out of not be sufficient. which JNIC’s direct loan amounted to US$1bn • Project undertaken jointly by Japanese electricity• Current market trends show that large ECA involvement is being driven off equity investments, and gas companies and Woodside Petroleum for offtake agreements and procurement the development of this US$10bn LNG project in• Most banks have the ability to hold larger participations when covered by ECA’s north western AustraliaECA Financing comes in two main forms, tied (direct) and untied (indirect) • LNG produced under this project will be exported• ‘Tied’ ECA financing is conditional to the procurement of equipment and materials from the to Japan over 15 years ECAs home country• ‘Untied’ ECA financing is not conditional on procurement of equipment and materials, untied Likely ECAs Involvement in Australia financing is conducive to • ECA’s have a strong appetite for Australian – Strategic interest has been indentified and the project has been indentified as a ‘national resource projects. This is primarily driven by the interest’ high level of direct and indirect interests which can be sourced from any one project. – Helping secure access to stable supplies of energy and mineral resources – Roy Hill Iron Ore Project – Promoting ECA s home country business activities – Ichthys LNG – Jack Hills Iron Ore Project – Collie Urea Fertiliser Plant – AP LNG – Wheatstone Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  15. 15. Page 15ECA FinancingWhat volume of funding can be sourced from ECAs? Tied V Untied • As a general rule, for Tied financing an ECA will lend up to 85% of the eligible foreign content (equipment and services), af payment of 15% minimum after down-payment (as per OECD rules) – Plus additional eligible local content – Plus up to 100% of the interest during construction period – Plus up to 100% of the ECA insurance premium/guarantee fee • Due to the more subjective eligibility criteria for untied ECA financing terms are more discretionary. Japan Korea China ECA J-BIC which acts as the direct lender K-EXIM which acts as the direct lender EXIM China ExIm which acts as the direct NEXI only provides insurance KEIC only provides insurance lender Sinosure only provides insurance Eligibility Criteria Not conditional on procurement of K-EXIM require at least 5% ownership EXIM Eligibility criteria is more subjective, equipment & materials from Japan. J-BIC AND some offtake heavy emphasis on “national interests”. A invests heavily into projects that secure KEIC requires a least 10% ownership at combination of ownership and offtake is the supply of natural resources AND offtake or EPC helpful, but either can be sufficient No clear guidelines but NEXI usually require min DSCR 1.25x Amount Covered Guidelines J-BIC maximum commitment is 70% of K-EXIM will finance a maximum 50% of EXIM Chinese banks keep their lending total debt, however J-BIC is not total debt guidelines private committal on maximum debt until late in KEIC will cover up to 100% of total the process political risk NEXI will provide insurance cover for 97.% of commercial risk and 100% political risk Recent Deals J-BIC: Pluto LNG Project - Direct loan of K-EXIM: Yemen LNG - Direct loan of EXIM: Lahore transport Company: Direct loan of US$1bn US$240m US$1.7bn J-BIC: PNG LNG Project - Direct loan of K-EXIM and KEIC: Ambatovy Nickel: Direct EXIM US$1.8bn loan of US$455m and US$195 political risk guarantee Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  16. 16. Page 16Capital Markets ConsiderationsCapital markets are strong supplementary funding sources as competition for funding and market volatility increase US Treasury Yields (%) 4.50• Scale of upcoming funding requirements and • Timing of entry is a key consideration especially in Basel III pressures on international banks will 4.00 current volatile market conditions likely increase participation and competitiveness 3.50 • Pricing volatility in recent uncertain times is of capital markets alternatives 3.00 demonstrated in example below – reinforces the• However, key markets are only selectively open 2.50 benefits of early engagement, paving the way for to offshore project finance or non-investment 2.00 timing / funding flexibility Dec-09 Apr-10 Jul-10 Oct-10 Oct Jan-11 May-11 Aug-11 grade issuers 10 year UST Yield• In the US markets, strong inverse correlation NAIC2 10 year Spread History (bps) Centennial Coal Melbourne Airport 350 between US Treasury yields and credit spreads Date Oct-11 June-11 300 – The boxes highlight periods of rapid change Volume US$225m US$600m 250 in US Treasury yields and indicate when 200 Tenor (yrs) 10, 12, 15 10,12,15 Treasury yields fall, credit spreads generally 150 increase and vice versa, especially at ~3% Rating NAIC-2 NAIC-1 100 – Demonstrates investors’ strong liquidity and Dec-09 Apr-10 Jul-10 -10 Oct- Jan-11 May-11 Aug-11 Pricing (bps) T+270-305 T+150-180 preference for minimum coupons above 4% NAIC2 10 yr Low NAIC2 10 yr High Source: Bloomberg, Private Placement Monitor Coupon 4.47, 4.62, 4.82% 4.47, 4.57, 4.77%Australian Corporate Bond Market US Private Placement Market Market USPP USPP— Undersupply of non-financial names — Potential to offer debt with long Source: NAB Private Placements in bank and sovereign dominated tenors and competitive pricing at market smaller volumes • Australian issuers generally access offshore marketsEuro / Sterling Markets RMB “Dim Sum” Bond Market following operational commencement to refinance— Ability to fund for very long — Typically short dated market earlier project financing or fund further expansion: tenors but more accessible — Use of funds is limited by PBOC – FMG US$2.04b 7% Senior Notes (2010) for higher rated issuers exchange controls – Mirabela Nickel US$395m 8¾% Senior Notes (2011) Hybrid / Convertible Bond Market US 144A / Reg S Markets – Consolidated Minerals US%405m 8 7/8% Senior — Global market returning with strong Resources — Largest and most liquid capital market Secured Notes (2011) activity given development of commodity prices — Greater opportunity for lower pricing due to and suitability for growth companies looking to diverse / deep investor base diversify funding sources Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  17. 17. Page 17Capital Markets ConsiderationsCurrent volatile market conditions limit the availability of capital markets that can be efficiently accessed by AustralianResources issuers • The maturity of the project will be a key factor in determining which capital market is most appropriate for the Issuer US 144A Australian Corporate Bond US Private Placement Hybrids / Convertible Bond Ratings Rating required but open to Investment grade rating No ratings required but No ratings required both investment grade and high required investment grade credit metrics yield credits desired Capacity (New Issue) ≥US$250m A$200 – A$300m US$50 – US$1,000m Up to US$200m Tenor Up to 30 years 3 – 10 years Up to 30 years Typically 5 years Advantages • Deepest and most liquid • Strong demand for non- • Pricing highly competitive • Dilution delayed and occurs market with large volume and financial names • Provides access to US up to 30% above the current tenor available • Competitive funding for 5 – investors, who are ‘passive’ share price • Pricing highly competitive 10 year maturities • Flexible structure (size, tenor, • Cost effective debt due to the timing, etc.) value of the imbedded call option Investor Base Qualified Institutional Buyers Well educated investor base ~40 key investors comprising Asian and European based (QIBs) accounting for ~90% of comprising of insurance and of insurance companies and specialised funds, but in the US institutional buyers; superannuation funds pension funds who generally particular out of Singapore and includes all USPP investors ‘take and hold’ Hong Kong Timeline Up to 8 weeks to establish an 8 – 10 weeks 6 – 8 weeks 4 – 6 weeks inaugural program Covenant Profile Standard bond undertakings Standard bond undertakings Covenants similar to bank debt No financial covenants, with no maintenance financial but may require some financial covenants, maintenance in negative pledge and listing covenants covenants nature documentation requirements Ongoing Issuance Strong capacity to support Support for ≥A$500m Support for ≥US$1bn Total size generally limited to ongoing issuance; 6 months 15 – 20% of market cap wait is recommended Project Suitability Brownfield Brownfield Greenfield Greenfield Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  18. 18. Page 18Alternative Funding SourcesAn expanded role for EFIC? EFIC • Established to support Australian export trade by providing insurance and finance • Does not fund directly but through the provision of guarantees • EFIC’s obligations are guaranteed by the Commonwealth making it simple for financial institutions to lend against the guarantee • EFIC’s role is to complement, not complete with, private financiers and insurers Challenges • Potential candidates for EFIC support must be able to demonstrate a genuine ‘market gap’ – this can be difficult to demonstrate ahead of time • Funding capacity for an individual transaction must not exceed 25% of the assets on commercial account – this currently results in a ceiling of c. A$175M for an individual project • Maximum funding capacity falls well short of international ECAs and below the potential demand for major resource and LNG projects across Australia (e.g. Roy Hill, Icthys, APLNG etc) • At present, the only alternative for large projects to seek funding through the National Interest Account. This requires ministerial approval and is reserved only for Projects that serve the ‘national interest’ • The uncertainty, long lead time and politics surrounding applications for ‘national interest’ status makes this an unreliable and therefore unlikely source of funding for large scale projects Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
  19. 19. Page 19Alternative Funding SourcesEasing the Infrastructure bottleneck – Asking the hard questions Infrastructure Projects receiving BAF supportProblem BAF Funding• Commercially viable mines unable to access markets due to lack of infrastructure Project State (A$M) and/or capacity constraints (Port Hedland, Dalrymple Bay etc) Regional Rail Link VIC 3,200• Private sector solution typically requires a ‘joint funding’ approach by common Hunter Expressway NSW 1,500 users (e.g. Wiggins Island) Ipswich Motorway QLD 884• Difficult to achieve in practice with commercial disputes resulting in protracted Pacific Highway – Kempsey Bypass NSW 618 delays and even forfeiture of developments (e.g. Oakajee Port) Gold Coast Rapid Transit QLD 365• Junior miners left stranded or forced to sell material stakes in order to progress Gawler Rail Modernisation SA 293 development (e.g. Magnetite mines in SA) Noarlung to Seaford Rail Extension SA 291 Melbourne Metro 1 VIC 40Who Should Pay? Total 7,191 Source: Department of Infrastructure and Transport1. Private Sector Infrastructure Investors? – Will require many users with sufficient credit quality / credit support Other Potential Candidates ? – Financiers will require certainty of revenues to ensure infrastructure costs Oakajee Port can be serviced (i.e. mandatory hedging , offtake contracts) Point Anketell Port & Rail – Long proven mines lives required to fund long term infrastructure charges (Greenfield mines will be challenging) Port Bonython, Sheep Hill, Point Lowly2. The Public Sector? Hunter Valley Rail Network – Public Infrastructure funding is now largely channeled through the Galilee Basin to Abbot Point Rail Project Business Australia Fund (BAF). To date focus has been on roads and public transport with commodity based infrastructure missing out Pilbara / Port Hedland Accommodation Projects – For BAF to be a meaning part of the solution, federal funding will need to Port of Portland – Green Triangle Region increase combined with a shift in focus towards commodity infrastructure Mines and Money Conference “Challenges of Financing the Resources Sector” 10 October 2011
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