Lundin Gold CFO Alessandro Bitelli on Financing Mining Projects in Ecuador

By: Miners & Investors
Published: 2 May 2018 08:14

Alessandro Bitelli, Executive Vice President & Chief Financial Officer at Lundin Gold, a Canadian gold miner, talks about the company’s Latin American ventures, a USD300mn deal to finance a project in Ecuador, a further loan syndication and a USD400mn equity transaction, as well as broader market outlook and the impact of politics.

The Ecuadorian government has demonstrated great support for the mining sector in the last four to five years and this has not changed under Moreno’s administration. The positive impact of this support is now evidenced by a few mining projects reaching the feasibility and construction stage, a marked increase in exploration activities, and the involvement of many foreign mining companies in the country. Alessandro Bitelli, CFO, Lundin Gold

Miners & Investors: Lundin Gold has secured a USD300mn project finance package for a gold resource in Ecuador. It is one of the first project finance deals out of the country. Can you walk us through the highlights of the transaction? What was the reasoning behind two tranches? How did you pick the lenders to work on the deal?

Alessandro Bitelli: Lundin Gold’s objective was to finance its billion-dollar gold project in Ecuador. We started with market intelligence and an assessment of the possible sources and appetite for such project finance given the nature of deal – single asset company in the mining space and challenging jurisdiction.

From that, we understood the need to have a three-prong approach of gold-linked debt products, commercial lending and equity. The gold-linked portion of the PF was secured in May 2017 after canvassing potential debt providers. The structure of the deal is commonly seen in the mining sector, with two tranches, one a gold-linked loan and a second tranche modelled as stream loan, each for USD150mn. The deal also came with a USD100-150mn commitment in a future equity transaction by Lundin Gold.

The unique aspect of the transaction relates to its structuring as true debt instruments to work within the existing regulatory and legal framework of the jurisdictions in question while retaining the variable characteristics of gold-linked products. The financing structure was recognized for its innovation, even receiving an award for it recently.

Miners & Investors: Do you have any further innovative transactions in the pipeline, here or elsewhere in Latin America?

Alessandro Bitelli:We followed the initial transaction with securing an additional USD300mn of senior debt from a syndicate of banks. Their commitment was announced this January and we are working towards finalising that currently. We then completed the project finance efforts with a USD400mn equity transaction that closed at the end of March, which included issuing common shares at a premium to the market and included participation by Newcrest Mining, a strategic investor.

Miners & Investors: Commodity prices and the mining industry in general have recovered over the past 12 months, how has that affected your funding strategy, especially for Latin American operations?

Alessandro Bitelli: We found that improved commodity prices did not have a tangible significant effect in facilitating our efforts to complete the project finance transaction. This may have been different had we not been a single-asset company and the asset were located in a better known or better understood jurisdiction.

Miners & Investors: What is your assessment of Lenin Moreno’s administration? Has the Ecuadorian government been supportive of the sector?

Alessandro Bitelli: The Ecuadorian government has demonstrated great support for the mining sector in the last four to five years and this has not changed under Moreno’s administration. The positive impact of this support is now evidenced by a few mining projects reaching the feasibility and construction stage, a marked increase in exploration activities, and the involvement of many foreign mining companies in the country.

Miners & Investors: What are some of the main objectives for Lundin Gold in Latin America through the remainder for this year and how do you plan to achieve them?

Alessandro Bitelli: With the PF efforts substantially completed, we can now fully turn our attention on the development of our project to make sure we stay on schedule and on budget to deliver first gold in the fourth quarter of 2019.

Miners & Investors: Are you at all concerned about the rise of protectionism worldwide, and the growing threat of trade wars between major powers? Has Lundin been affected by the Trump tariffs in any way yet?

Alessandro Bitelli: Our activities are unlikely to be directly impacted by protectionism or trade wars. We have not been affected by Trump tariffs as we conduct very limited business in the USA. That said, as a gold mining company, we understand the speculative nature of gold and we naturally always look at worldwide events that could affect the gold price.

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