Accessing funding for iron ore projects. Allen & Overy

Transcription

1 Accessing funding for iron ore projects Allen & Overy

2 Capital raised by the mining and metals industry IPOs 21,400 12,406 2,987 17,948 17,449 1, ,541 Follow-ons 66,802 48,751 73,806 49,705 49,745 25,950 26,233 21,353 Convertible bonds 12,865 12,238 14,431 5,477 2,365 3,537 7,738 3,709 Bonds 36,358 38,146 61,016 72,502 83, ,539 87,890 52,380 Loans 110, ,691 62, , , , , ,853 Total 248, , , , , , , ,835 Source: Ernst & Young Mergers, acquisitions and capital raising in mining and metals 2014 trends Allen & Overy

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4 Equity funding options Main advantages Key considerations Asset /share sales; JVs IPO; Secondary issues Alternative to debt/equity Direct negotiations, flexible terms No minimum cash flow/credit rating Good result re-rating, streamlines/focuses business No ongoing security/interest payment May be less dilutive than equity issue Flexible Timing at least 6-12 weeks, possibly much longer depending on complexity of due diligence, regulatory, negotations Potential for loss of control Potential execution/timing risk Due diligence can be costly, timeconsuming Valuation can be complex and difficult, especially at early stages Regulation; approvals Dilution Speed of execution (at least 3 Cost months for IPO but only 1-6 market risk weeks for follow on) Regulatory regime listing rules, Access to investors particularly ongoing disclosure and reporting obligations Allen & Overy

5 Debt funding the importance of bankability 5 Pillars of bankability Strategies for mitigating risk Project funding Completion risk Operating risk Revenue risk Legal risk Due diligence Legal Technical Market Financial Transfer Project counterparties Insurance Covenant package Sponsor support Allen & Overy

6 Debt(-like) funding options Main advantages Key considerations Royalty / Revenue stream financing Flexible terms speed of execution Limited documention No covenants, guarantees, security No payment until production Reduction in shareholder returns What seems like a fair price pre-bfs may not once in production Reduced flexibility in future funding alternatives In substance debt, so increased risk to shareholders Small volumes Convertibles / Hybrids Sits above equity but below senior/sub debt Coupon may be lower than straight debt; cheaper than equity Flexible terms speed of execution Less onerous covenants than pure debt Coupons require cashflow Generally most attractive in rising market Potential dilution Execution risk around timing and pricing; last minute changes to pricing (margin, conversion premium) Allen & Overy

7 Debt funding options Project financing Debt capital markets Main advantages Limited recourse Volume Flexible; tailored terms Relationship driven (consents, waivers) Refinancing flex Gearing Additional source of long term capital; longer tenor; different investor pool Potentially attractive pricing; fixed price May be unsecured less restrictive covenants Key considerations Documentation, due diligence burden Onerous covenants Competing projects may dilute appetite Political risks Policy requirements for ECA financiers Constraints on equity returns May require credit rating Final terms/pricing not known until very late stage (marketing spin?) Execution sensitive to markets Carry costs; cross-currency risk Limited appetite for construction risk Less flexibility (consents; prepayments) Query availability pre-completion Query depth of market for pure resources (as opposed to infrastructure) Allen & Overy

8 Getting the fundamentals right Construction risk EPC or EPCM? How will overruns be funded? Sponsor support Refinancing risk Loan tenor cf mine life Other sources of liquidity Project on project risks Environmental Legal compliance Reputational concerns Cashflow Resource risk Operating costs Price volatility; hedging Market forecasting Security Availability and quality of information Political risk Strength of security package; realisation cf control Political risk Term of consents/concession Interaction with security enforcement Allocation of change of law risk Allen & Overy 201 8

9 Questions? Adam Stapledon Partner - Sydney Contact Tel: adam.stapledon@allenovery.com These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP s affiliated undertakings. Allen & Overy