CVRD deal heralds mining finance bonanza
Outside the world of archaeology and Inca ruins, Peru is rarely considered a world leader in much other than bureaucracy and bad driving. But when it comes to mining and companies that seek to raise capital on local markets in Latin America, the mineral-rich Andean nation has positioned itself as the place to be. According to Dealogic, of the mining sector bond deals in Latin America over the past 18 months, Lima has handled six major issues, far more than in the traditionally sophisticated financial capitals of São Paolo, Mexico City, Santiago and Buenos Aires.
“Peru’s capital market is becoming a key source of mine capital as the investor base widens and the market gives companies more exposure. It’s one of the most significant developments we’ve seen in a long time in mine finance in Latin America,” says Jorge Luis Rodriguez, head of economic research at Lima brokerage Centura SAB. “The risk perception of issuing in Peru has fallen dramatically,” says Carlos Galvez, CFO at Buenaventura, a local metals company.
The market is not just for local mining companies. Canada’s Barrick Gold, one of the world’s biggest bullion producers, issued $100 million in debt in two tranches in April this year and April 2005 with paper of six-year and eight-year maturities, led by Citigroup and local bank Banco de Crédito. The Yanacocha gold mine, owned by Newmont and Buenaventura, issued $158 million in three tranches in July with 10-year maturities, with Banco de Crédito as the bookrunner. Both deals enabled the companies to raise funds for mine expansion at acceptable rates of interest and the issues were heavily oversubscribed, with local pension funds buying about 40% of the Yanacocha bonds, according to Banco de Crédito’s brokerage arm, Credibolsa.
Cerro Verde, owned by Phelps Dodge, issued $90 million in 9.4-year bonds in April. Peruvian poly-metallic miner Milpo is expected to tap the local market in the near future after signing a letter of agreement with Citibank in August to raise $40 million in medium-term financing.
“Peru has an impressively developed domestic capital market and you see how certain mining projects, be they greenfield or an increase in capacity, have been able to raise money domestically, which I think is an incredible success,” says Philipp Reimnitz, head of resources at the markets and investment banking arm of Germany’s HVB bank. “I’m not sure that would work in Brazil because, although it is an old mining country in terms of iron ore, I don’t think you would find money from pension funds or from institutional investors for a bond in this sector. It doesn’t come naturally to Brazilian investors. Peru is more about mining and the sector has such a strong weighting in its gross domestic product.”
