Download 1. Multi-client/user infrastructure: a particularly relevant

Fostering greenfield mining-associated
shared transport infrastructure through PPPs:
Challenges and Solutions
for sub-Saharan Africa
International Finance Corporation
Cape Town, February 2013
1. Multi-client/user infrastructure: a particularly relevant topic in SSA
Rapid economic growth in newly industrialized nations has fuelled a mineral “supercycle”
Iron Ore (mm tonnes)
1,400
1,200
1,000
800
Consumption - China
Consumption - RoW
Seaborne Imports - China
Seaborne Imports - RoW 1,070
898
1,263
1,249
688
600
400
1,396
275
326
2005
2006
628
629
2009
2010
444
384
200
-
2007
2008
Source: RBC Capital Markets,
… And stimulating global trade
180
160
140
120
100
80
60
40
20
0
Iron Ore
Source: Taylor DeJongh
Consumption - China
Seaborne Imports - China
1,482
1,462
Top Iron Ore Exporters and Importers (mm tonnes, 2011)
138**
222*
1,600
1,400
706
79
331
466
53
Exporter
Importer
Coal, Australian thermal
But for how long?
Iron Ore (mm tonnes)
1,600
… pushing commodity prices to record highs until 2010
Iron Ore & Coal (USD/metric ton)
Economic growth has stimulated demand for minerals
1,429
Consumption - RoW
Seaborne Imports - RoW
1,393
1,369
1,200
1,000
800
706
771
836
927
901
600
400
200
* Asia excl. China, ** Europe
Source: ISSB
-
2011
2012
Source: RBC Capital Markets,
2013
2014
2015
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1. Multi-client/user infrastructure: a particularly relevant topic in SSA
This super cycle is making Africa’s landlocked mineral resources, on paper, bankable
• Historically, non existent transport infrastructure and the scarcity of risk capital and
investment funds have limited exploration & mining development
• Unlocking Africa’s vast mineral resources – a straightforward problematic – or is it?:
High volumes
High prices
Long distances
Iron Ore / Coal:
Need for heavy rail
and port
infrastructure
• Who is going to finance the mining transport infrastructure needed?
• For known iron ore projects alone, the financing needs are estimated to be in excess of
US$50 billion (4,000 km of new railways, new ports, etc..).
• Uneven size of deposits, long distances from export location facilities strongly suggest a
need for coordination between Governments and mining companies to develop affordable
and bankable logistics solutions.
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1. Multi-client/user infrastructure: a particularly relevant topic in SSA
Iron ore projects logistics challenges in West and Central Africa – a textbook case
Legend
Existing railway
New railway
Existing port
New port
Iron ore project
<25 25-100
>100
<2.5 2.5-5
>5
Nkout – Cameroon
Core Mining
Estimated production
(mtpa)
Estimated cost of
related infra (US$ bn)
El Agareb – Maurit.
ArcelorMittal, SNIM
Mbalam – Cameroon
Sundance Resources
Topa – CAR
Ferrum Resources
(Exploration)
(Exploration)
CAR
Faleme – Senegal
ArcelorMittal, Sen.
Nouadhibou
MAURITANIA
SEN.
Douala
Mamelles
EQ. GUINEA
Western Africa
Kalia – Guinea
Bellzone
CAMEROON
MALI
Simandou – Guinea
Rio, Chinalco,
Guinea Gvt, IFC
Dakar
Libreville
Nadeba – Rep. of
Congo
Sundance Resources
(Exploration)
REP.
CONGO
Central Africa
GABON
Port-Gentil
Mnt Avima – Rep. of
Congo
Core Mining
DRC
Pointe-Noire
Simandou II –
Guinea
GUINEA
Conakry
SL
Pepel
Freetown
Monrovia
Buchanan
Tonkolili– Sierra L.
LIBERIA
Afr. Minerals, Shandong Iron & Steel
Belinga – Gabon
China Ntnl Mach. &
Eqpmt + Gabon
COTE
D’IVOIRE
Mnt Nimba –
Guinea/Liberia/CI
Putu – Liberia
Severstal, Afr. Aura
Mayoko – Rep. of
Congo
African Iron
Zanaga – Rep. of
Congo
Zanaga Iron Ore
Kango – Gabon
Core Mining
Sources: IFC, RBC Capital Markets
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1. Multi-client/user infrastructure: a particularly relevant topic in SSA
Public financing of Africa’s mining export logistics solutions is not a credible option
# of iron ore
mines
# of railways
# new
ports
Est. Cost of
Infra US$bn
% GDP
% Ntnl.
Budget
Guinea
2
2
1
10.4 to13.6
91-118%
850-1100%
Cameroon
2
2
1
6.6 to 8.5
14-18%
120-160%
Mauritania
3
2
0
3.8 to 4.9
53-69%
260-340%
Senegal
1
1
0
3.8 to 4.9
15-19%
90-120%
Rep. of
Congo
3
3
0
3.3 to 4.2
18-23%
90-110%
Gabon
2
2
0
2.9 to 3.8
12-15%
65-85%
Liberia
2
2
0
1.9 to 2.5
80-103%
440-570%
Sierra Leone
3
3
0
1.6 to 2.1
24-31%
250-330%
Country
Source: IFC, RBC Capital Markets, CIA World Factbook
Conclusions:
1) Greenfield multi-users/clients infrastructure can only be financed by the private sector either (i) directly
by the mining company as sole user of the infrastructure or (ii) by a third party vehicle under a PrivatePublic Partnership (PPP) scheme.
2) Public sector’s role is limited to the award and regulation of transport concessions to private sector
operators. Role can extend back to infrastructure financing once first movers projects have been
successfully implemented and have created the “fiscal space” expected from them.
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2. Significant challenges and limited global experience to date
There is a wide array of theoretical multi-client, multi-user and multi-usage options
• Options
for shared-use of greenfield mining-related infrastructure
assets are virtually unlimited, in theory:
 Two ownership models: Vertical integration (Mining Company)
or Partial Integration (1/3 party company)
 Multiple combination of users and usage:
 One single operator providing transport services to a
single or multiple mining clients;
 One single operator providing transport services to mining
client(s) but also to general freight and/or passenger client(s);
and
 Multiple operators providing transport services to single or
multiple mining, general freight and/or passenger client(s).
 Different timing of shared use for all combination of users and
usage: known or not known at the time of financing of transport
infrastructure.
• However, there is no successful example of shared use
greenfield railways worldwide. All known successful examples are of
brownfield projects (Public sector availed the infrastructure to private
operators)
High bankability, low complexity
Single-use
infrastructure
(backed by one
anchor mine)
Multi-user/client
infrastructure with
users known at
Financial Close
Multi-user/client
infrastructure with
users unknown at
Financial Close
Multi-purpose
infrastructure with
users known at
Financial Close
Multi-purpose
infrastructure with
users unknown at
Financial Close
Low bankability, high complexity
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2. Significant challenges and limited global experience to date
Mines and infrastructure are radically different asset types which further raises
the bar of greenfield PPP bankability
Mine
Mine-associated rail
Conclusion
Liquidity
High – tradable asset
Low
 Mining assets
are more tradable
Co-Dependency
Medium - The existence of
the infrastructure increases
the value of the mine, but
the underlying value of the
deposit depends on the
quality and volume of the
resource
High – the value of the rail
is highly dependent on the
volume the mine can
produce.
 Mining assets
have higher
intrinsic value
Scalability
High - Can be partially
exploited
Low - Has to be built for
highest expected demand
 Mining
operations are
highly scalable
Easily manageable and
clearly defined mining area
Significant right-of-way over
hundreds of km with little
control over outside
incursions
 Mining site is
easier to
secure/control
Physical Control
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2. Significant challenges and limited global experience to date
…And
mega-projects are difficult to implement in a risky political environment
Sovereign Credit
Rating (S&P)
Political risk
(EIU)
% of natural resource rents in
GDP (2010, World Bank)
A-
A
5%
Namibia
BBB
BBB
1%
Gabon
BB-
B
50%
Mozambique
B+
BB
9%
Cameroon
B
CCC
9%
DRC
Non rated
Non rated
30%
Guinea
Non rated
Non rated
21%
Liberia
Non rated
Non rated
15%
Mauritania
Non rated
Non rated
54%
Congo
Non rated
Non rated
64%
Botswana
Lower
Overall
project
finance
risk
level
Higher
Existing mining powerhouses
South Africa
BBB
BBB
5%
Brazil
BBB
BBB
5%
Australia
AAA
AA
8%
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3. A realistic outcome: an anchor investor with a shared-use regime
A creditworthy large anchor mine is the key starting point to making greenfield
multi-use projects feasible in SSA
• Because of the fortunate co-location of
resources, once the infra is built for the
anchor mine, it can then become the
transport backbone for the rest of the
country/region.
•The Majors are likely to remain the key
infrastructure investors and the key
anchor clients in sub-Saharan Africa for
the foreseeable future.
# of identified iron ore projects
•The presence of a large mine upon
which the entire infrastructure project
can be underwritten is a sine qua non
condition to successfully project
financing greenfield mining-related
infrastructure PPPs.
Number and size of identified iron ore projects
in West and Central Africa
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First mover
projects that
will enable
smaller ones
to become
feasible
1
< 25
25-50
50-10
1
Production
Target
> 100 (mtpa)
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3. A realistic outcome: an anchor investor with a shared-use regime
Key contractual arrangements can improve project’s bankability for both investors and lenders
2
1
Tariff-setting
flexibility
Tariffs should allow
investors to recoup
capex, cover opex
and make a return.
3
Long term
take or pay
contracts
Take-or-pay contracts
provide the most
security for investors,
though also are harder
to achieve with small
users without
Government support.
4
Managing
capacity
expansion
Addressing capacity
expansion in the
contract
documentation is
particularly important
for greenfield shareduse projects.
Regulation
and dispute
resolution
Contract should
address operator’s
right to challenge
access requests
and clients/users’
right to access.
This type of contractual arrangements is designed to address the needs of mining companies for:
a) tariff fairness and visibility, b) equal access to transport services, d) secured transport capacity,
e) limited cross subsidies among clients/users, and f) transparent and equitable appeal process.
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4. Concluding remarks and topics for discussion
Main conclusions (1/2)
1. The opportunity:
•
High commodity prices are unlocking new opportunities
•
Exploiting these resources depends on having the infrastructure to export them
• Government financing is simply not an option in SSA
 Developing greenfield multi-user infrastructure to support mining operations
through public-private partnership schemes seems to be the only credible solution
to unlocking Africa’s untapped mineral resources.
2. The challenges:
• Can mining companies deliver on the infrastructure?
• Bankability of mining-related transport assets is difficult to achieve
 There are a limited number of financing solutions available for structuring a
greenfield multi-use project.
• Transport assets present fundamental differences with mining assets from a project
finance standpoint
• Sub-Sahara African countries present Sponsors with unique and often misunderstood
political economy challenges
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4. Concluding remarks and topics for discussion
Main conclusions (2/2)
3. The models which could work:
• A greenfield shared-use PPP will have to rely on an anchor mine
• Majors are best equipped to support greenfield shared-use PPP models
• Two distinct access models to consider are the access regime, where the Concessionaire
provides access to the infrastructure (e.g., tracks) to other users who use their own
equipment to transport their own goods or a haulage regime, where the principal operator
acts as the sole transport service provider for other mines or clients.
• Needs and pressures have to be anticipated and acknowledged upfront within the PPP’s
contractual arrangements:
 A balance needs to be sought between protecting the private investors while enabling
third party access.
 Additional transport capacity needs to be anticipated and incentivized.
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Comments, questions?
Contact the Africa Infrastructure Department at IFC:
Pierre Pozzo di Borgo, Principal Investment Officer,
[email protected]
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