Raising capital for SADC coal projects
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Transcript of Raising capital for SADC coal projects
Coal Mozambique
Mining / Infrastructure
Risks & Financing considerations
“Your project development partner, delivering value through a multi-skilled team”
15th July 2013
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 2
AGENDA
RECAP ON TOPIC
Raising capital for SADC coal projects
• Recent financings in coal projects in SADC
• Minimising risk – Key risk areas in the Southern African context and
strategies for safeguarding mitigating against them
• Attracting overseas investment for Southern Africa coal projects –
How are foreign investment patterns developing?
• Coal mining & inter-relationship with Energy Projects
• Coal Asset valuations and linkage as equity to the financing approach
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 3
AGENDA
ABOUT CRESCO
COAL & ENERGY - INTERRELATIONSHIP
RECENT FINANCING EXPERIENCES IN MINING & ENERGY
MINIMIZING RISK
ATTRACTING INVESTMENT IN SADC COAL PROJECT
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 4
CRESCO’S MARKET NICHE
CRESCO bridges the gap between a concept and reality to achieve a
viable sustainable project
CRESCO has a multi-skilled team to assist investors in securing
and developing high quality businesses and projects
Helping you
bridge the
gap
Concept
Promoters do not have time
and/or necessary skills to
develop their projects
Often project risks have not
been adequately addressed
Promoters have unrealistic
expectations of investor
requirements
Viable A well structured and
bankable project
Efficient project
implementation
Skilled operational and
financial management of
project
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 5
CRESCO SERVICES AND INDUSTRY FOCUS
CRESCO can tailor the services per project and per industry based on
client requirements – complementing available technical skills
Key Services
• Project Facilitation
• Project Advisor
• Project Structuring
• Can co-develop projects
• Approaching the “right” funder
• Closing the equity and debt finance
• Financing Modeling
• Debt refinancing
• Turnaround
• Debt re-structuring
Key Industries
• Mining (Coal, Gold, Chrome etc)
• Infrastructure
• Rail
• Telecoms
• Mineral Beneficiation
• Traditional & Renewable Energy
• Wood & Paper
• PPP structures
Education
Container Scanner
Fleet management
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 6
EXPERIENCE IN THE MINING SECTOR
The mining sector does not seem to mirror other industry sectors in
terms of financing norms or processes (reliability of coal resource)
POST FUNDING PRE FUNDING
Operations Commission Implementation
/ construction
Fund
raising
Bankable
Feasibility
Pre-
Feasibility Concept
Diagnosis
Fin
an
cia
l C
lose
Financial
Completion
Technical
Completion
The deal process and key milestones
Strategy & structuring
Marketing to investors
Due diligence
Negotiation
Post-closing support
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 7
MIGA is a member of the World Bank Group
Mandate to promote foreign direct investment in developing countries by providing
guarantees (political risk insurance) to investors and lenders
MIGA very helpful to supplement investments in projects in politically sensitive
jurisdictions or where the Government is the counterparty
MIGA covers the following key political risks:
Currency inconvertibility and transfer restriction;
Expropriation;
War, terrorism and civil disturbance;
Breach of contract;
Non-honoring of sovereign financial obligations.
CRESCOs MIGA ADVANTAGE
CRESCO is the appointed agent for MIGA (world bank political
insurance agency) which support projects in unusual destination
CRESCO / MIGA Agency
CRESCO s assistance to clients in respect of Miga products comes at no
additional cost to the client and standard Miga rates will apply.
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 8
AGENDA
ABOUT CRESCO
COAL & ENERGY - INTERRELATIONSHIP
RECENT FINANCING EXPERIENCES IN MINING & ENERGY
MINIMIZING RISK
ATTRACTING INVESTMENT IN SADC COAL PROJECT
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 9
MINING / ENERGY INTER-RELATIONSHIP
2 key areas of inter-relationship – 1. Way of “adding value to current
product – 2. Electricity generation or upgrading of commodity
1. Type of coal mining projects in Mozambique
1. Coal mining & energy power projects (Moatize, Riversdale, Ncondezi)
2. South African coal project looking to export through Maputo (Coal of Africa
/ other SA Juniors)
2. Type of Projects in South Africa
1. Coal mining & energy power projects (Exxaro, smaller IPPs)
2. South African coal project looking to export through Richards Bay (BEE
only terminal touted
3. Type of Projects in Botswana
1. Coal mining & energy power projects (Mmamabula, Morupule B)
2. Coal mined for export through Walvis Bay
4. Type of Projects in Zambia
1. Coal / energy power projects (Maamba, other Juniors)
2. No large export potential currently identified (logistics out difficult)
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 10
MINING / ENERGY INTER-RELATIONSHIP
Typical projects seen in SADC require large government involvement
to assist in infrastructure upgrade - government off take/ support
Key coal mining & energy related projects aspects in SADC
• Coal mines reliant on energy generation for own operations (often not at
the end of an existing “stable” transmission network)
• Coal fired power stations in turn require larger output transmission lines
and grid connections
• Power stations often sell to a combination of private & government off
takers
• Coal mines that are exporting coal require large government infrastructure
in investment
• In South Africa – Eskom & other SoEs providing logistics solutions for own
power stations
• Generally bottleneck to project development – Government supported
infrastructure
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 11
AGENDA
ABOUT CRESCO
COAL & ENERGY - INTERRELATIONSHIP
RECENT FINANCING EXPERIENCES IN MINING & ENERGY
MINIMIZING RISK
ATTRACTING INVESTMENT IN SADC COAL PROJECT
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 12
FINANCING YOUR COAL / ENERGY PROJECTS
Complexity and ease of project finance, depends on mitigation of risk
Good projects – firm market off takes / reliable resource, infrastructure
Power – Utility – Co-gen / Co-cycle
Transportation – Rail – Airports
Telecoms
– Broadcast / Fixed – Cellular (‘Rule of 3’)
Oil and Gas
– Upstream – Pipelines
Mining – Exports – Coal – Gold / Platinum
Good Project Finance Targets Difficult Project Finance Targets
Infrastructure
– Off take difficult (roads)
– Long term funding
Petrochemicals
– Anything named “-lene”
– Bulk Chemicals have long
– cycles
Manufacturing
– Domestic market only
– Multiple competitors /
Ease of entry
Agriculture
– Long lead times
– High performance risk
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 13
FINANCING INVESTMENT CRITERIA / PERCEPTION OF MOZAMBIQUE – COAL MINING
Selected list of current projects in SADC – complete list over 100 long
with majority of projects in feasibility or exploration phase
Project Commodity Location Project phase Estimate value
Exxaro UCG Project UCG sub-Saharan Africa Concept & Evaluation n/a
China-Africa Sunlight Energy Thermal coal Gwayi, Zimbabwe Evaluation US$21bn
Rukwa coal project Coal Tanzania Evaluation/Exploration US$700m
Mkomolo, Namwele and Muze projectsCoal Tanzania Evaluation/Exploration US$75m
Mmamabulo coal Thermal coal Botswana Evaluation/Exploration n/a
Songo & Mutarara projects Coal Mozambique Evaluation/Exploration n/a
Revuboe cocking coal mine Coking coal Tete, Mozambique Pre-feasibility US$555m
Vlakplaats Thermal coal South Africa Pre-feasibility ZAR32.5m
Ncondezi thermal coal Project Thermal coal Tete, Mozambique Feasibility US$627m
Makhado Project Thermal & coking coal Limpopo, South Africa Feasibility ZAR4.2bn
De Wittekrans Complex Thermal coal South Africa Feasibility ZAR2.042bn
Morupule South Coal Botswana Feasibility US$200m
Boikarabelo mine Coal Waterberg, South Africa Funding A$62.6m
Zambeze Project Coal Tete, Mozambique Construction n/a
Maamba Thermal coal Zambia Construction USD700m
Moatize Coal Project Thermal & coking coal Tete, Mozambique Production US$1.3b
Chirodzi coal mining project Thermal coal Tete, Mozambique Production US$180m
Minas Moatize coking coal project Coking coal Mozambique Production n/a
Benga coal mine Coking coal Mozambique Production US$3b
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 14
FINANCING – SOURCE OF FUNDS
Source for coal and coal fired power stations in Africa are primarily in
the top 5 sources with Multilaterals the largest by some way
Source: Global Coal Risk Assessment 2012
Sources of funds (internationally) Multilaterals still provide the
majority of funding (IFC, AdB, EIB
others)
Japan is a large financier
internationally but not seen active
in SADC
US focus on non SADC countries
- Small % in West Africa
• Chinese large providers of
finance (Morupule B, ZESCO,
ZESA and other utilities)
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 15
FINANCING – SOURCE OF FUNDS
Although the American banks were the top 4 and over 50% - not seen
very active presence in SADC
Source of funds by Top 20 Commercial banks
Source: Global Coal Risk Assessment 2012
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 16
PROJECT FINANCE .VS CORPORATE LENDING
Project Finance “complex” / “costly to implement” – minimum amount
USD25m and off take risk difficult to mitigate for infrastructure
OPERATOR
PROJECT SPONSORS
Financiers central to structuring the deal either unfamiliar or uncomfortable with
the risks posed by energy technologies, some not been in commercial operation
Typical
complex
project
finance
structure
Lack of project finance capacity / experience / Moz exposure has been one of
the barriers to the widespread deployment of energy technologies in
commercial-scale projects.
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 17
Extract from presentation – Norton Rose on IPP program for typical structure
updated for Base Load coal Plant structure
Source: Norton Rose
presentation to IPFA
March 2012
1. Internal Electricity sales
2. Shared services
3. Land lease 1. Coal supply agt
2. Water term supply agt
Brown leaf
supply
Mine interface
POSSIBLE PROJECT FINANCE STRUCTURE FOR THE BASE LOAD COAL PROGRAM - ESKOM
The possible Base Load coal project would follow (RSA REIPPP) and
would be structured with many legal agreements
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 18
Seeking “quality” / “reliable’ infrastructure to fulfil export contracts
Linked to SA limitations on rail infrastructure
Requiring major upgrades in Maputo / Matola
FINANCING - INVESTMENT CRITERIA / PERCEPTION OF MOZAMBIQUE
Mining is now a major investment focus – coal being key area of
interest – with the 3 large projects in Tete key focus
Type of coal mining projects in Mozambique
1. Moz coal mining projects (Moatize, Riversdale etc)
2. South African coal project looking to export through Maputo (Coal of Africa
/ other SA Juniors0
1. Moz Coal Mining projects
Large projects requiring significant capital
Need to build own infrastructure to allow reasonable “all in cost of transport”
Projects promising for many years – now need to deliver
2. South African Coal Projects - Use of Moz export potential
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 19
FINANCING - INVESTMENT CRITERIA / PERCEPTION OF MOZAMBIQUE – COAL MINING
2 different approaches taken by promoters (large corporate with vast
resources - Vale) vs. Junior mining
Large promoters
Don’t generally require Project Finance (perhaps some structuring)
Large enough to influence government policy
Can start production without full financing in place
Ability to also ‘subsidise” the required infrastructure (i.e. rail & road link)
Can take a longer term view on returns / viability
Junior miners
Focused on ensuring that share price ‘creeps steadily up”
Although portion equity financed – requires project finance debt to fully
unlock opportunity
Always considering the large sale to Mining Major (short term decisions)
Cannot assist in any major infrastructure funding
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 20
POLICTICAL RISK INSURANCE FOR MOZ
Mozal project opened up Moz as a investment destination for large
mega projects – however most investors still require political risk
Key coal resources and links to ports
South African Export Credit
Insurance supporting SA
contractors – 1.5% annualised
costs including Commercial cover
Mozal – R2.1bn exposure
Non Mozal R1.6bn
Tenors limited to 12 years and
large existing exposure in Moz
Tete
Hwange
Limpopo
ECIC (4 active projects)
Provides political risk insurance
cover for long term (15 to 20 yrs)
Pricing 1 to 1.5% sector dependent
Provides “inherent” credit risk
cover if counterparty is Moz Govt /
Sovereign or sub sovereign
MIGA (10 active projects)
R2.1bn exposure
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 21
AGENDA
ABOUT CRESCO
COAL & ENERGY - INTERRELATIONSHIP
RECENT FINANCING EXPERIENCES IN MINING & ENERGY
MINIMIZING RISK
ATTRACTING INVESTMENT IN SADC COAL PROJECT
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 22
RISKS ANALYSIS OF YOUR MINING PROJECTS
Each of the key project risks need to be mitigated – 3 key risks of
particular focus to satisfy debt & equity funders
WITHIN THE
PROMOTERS
CONTROL
OUTSIDE THE
PROMOTERS
CONTROL
WITHIN THE
FINANCIER’S CONTROL
1.Operating: Technical
2.Operating: Cost
3.Operating:
Management
4.Sponsor/Participant
5.Engineering
6.Completion
1. Resource Profile
2.Market
3.Infrastructure
4.Environmental
5.Political
6.Force Majeure
7.Foreign Exchange
1.Syndication
2.Interest / Funding
3.Legal
Set out below are the key risks that we experienced to be difficult to mitigate
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 23
EXPERIENCE IN THE MINING SECTOR
The commodity boom / resource grab has seen many “one” man
bands now developing projects – but needing assistance
POST FUNDING PRE FUNDING
Operations Commission Implementation
/ construction
Fund
raising
Bankable
Feasibility
Pre-
Feasibility Concept
Fin
an
cia
l C
lose
Financial
Completion
Technical
Completion
The deal process and key milestones
Financial Investors
• Entrenching rights earlier than later
• Very beneficial as provides fund to do correct work
• Promoters battle with “huge” loss in equity
Engineering companies as Investors
• Engineering companies entrench use of own services by taking equity stakes
• Many companies are seeking equity upside – not just services
• Problems with related party transactions – i.e. Equity participant, basic
engineering, EPC contractor, O&M contractor
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 24
EXPERIENCE IN THE MINING SECTOR
Many promoters / contractors under estimate how much is needed to
complete a “pure” project financing – limited recourse
POST FUNDING PRE FUNDING
Operations Commission Implementation
/ construction
Fund
raising
Bankable
Feasibility
Pre-
Feasibility Concept
Fin
an
cia
l C
lose
Financial
Completion
Technical
Completion
The deal process and key milestones
Funding terms
• High gearing levels previously experienced no longer available
• Loan tenors linked to 75% of resource life
Funding issues
• Moz Commercial banks have limited capacity and risk profile for funding
• South African banks are taking up difference but country limits for Moz
• Development finance institutions are plugging the gaps / focus on infrastructure
• DFIs can offer both equity and debt + many infrastructure funds seeking equity
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 25
RISKS ANALYSIS OF INFRASTRUCTURE PROJECTS
Infrastructure is harder to finance requiring large amounts, long term
off takes / market support linked to long term finance
WITHIN THE
PROMOTERS
CONTROL
OUTSIDE THE
PROMOTERS
CONTROL
WITHIN THE
FINANCIER’S CONTROL
1.Operating: Technical
2.Operating: Cost
3.Operating:
Management
4.Sponsor/Participant
5.Engineering
6.Completion
1. Supply
2.Market / Traffic
3.Infrastructure
4.Environmental
5.Political
6.Force Majeure
7.Foreign Exchange
1.Syndication
2.Interest / Funding
3.Legal
Set out below are the key risks that we experienced to be difficult to mitigate
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 26
EXPERIENCE IN THE INFRASTRUCTURE SECTOR
Infrastructure promoters generally more Govt focused and
supported by contractors “keen” to sell construction services
POST FUNDING PRE FUNDING
Operations Commission Implementation
/ construction
Fund
raising
Bankable
Feasibility
Pre-
Feasibility Concept
Fin
an
cia
l C
lose
Financial
Completion
Technical
Completion
The deal process and key milestones
Financial Investors
• Long term returns on infrastructure generally not high enough to satisfy
investors (whilst considering Moz country risk, local currency)
• Generally projects require at least 40 to 50% equity returns
• Institutional investors not yet making large investments in Moz infrastructure
Engineering companies as Investors
• Many Engineering companies preparing feasibilities @ risk
• South African contractors are well set up to unlock this sector
• Generally will sell out at financial close
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 27
EXPERIENCE IN THE INFRASTRUCTURE SECTOR
Infrastructure financing is more difficult then mining due to loan
tenors required - whilst trying to limit interest rate pricing
POST FUNDING PRE FUNDING
Operations Commission Implementation
/ construction
Fund
raising
Bankable
Feasibility
Pre-
Feasibility Concept
Fin
an
cia
l C
lose
Financial
Completion
Technical
Completion
The deal process and key milestones
Funding terms
• Projects require long term tenors (over 10 years with > 2 years construction)
• Need to leverage off lower US linked interest rates
Funding issues
• Moz Commercial banks have limited capacity and risk profile for funding
• Hard to fund in US currency whilst off take in local currency
• Always the same usual suspects being involved (limited personnel capacity)
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 28
AGENDA
ABOUT CRESCO
COAL & ENERGY - INTERRELATIONSHIP
RECENT FINANCING EXPERIENCES IN MINING & ENERGY
MINIMIZING RISK
ATTRACTING INVESTMENT IN SADC COAL PROJECT
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 29
ATTRACTING INVESTMENT IN SADC COAL PROJECT
Some key “stability” considerations to ensure an improved
investment climate for attracting further investment in SADC
Positive Stability considerations
Government certainty / implemented precedent on Government Mining
Legislation
Minimize “free carry” for local country participation
Allow linkage of contracts to non local currencies (in the short term)
Government investment in linked infrastructure assets
Negative Considerations
Changing Government legislation – differing implementation for differing
parties (“no one size fits all)
Forcing significant “local buy-in” at zero of highly discounted value
Requiring all the infrastructure to be funded by “private sector”
Embarking on PPP programs which do not materialise in Projects
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 30
CONTACT US
CRESCO offers both services per deliverables, usually on a time &
materials basis, to arranging mandates on a fixed fee basis
Directors contacts Focus area
Robert Futter, Director Projects /
Financial /
Francois Viljoen Energy Focus
+27 (0) 83 704 0335
Office details
Manhattan office Park
16 Pieter Street
Unit 6 South
Ground floor
Centurion
Johannesburg
South Africa
186
+27 (0) 12 665 2612
+27 (0) 12 665 3837
CRESCO COAL MOZAMBIQUE CONFERENCE Print Date: Wednesday, July 17, 2013 • Page 31
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