Baja snags US$858M financing for Boleo

Construction and development can start “imminently” at Baja Mining’s (BAJ-T, BAJFF-O) Boleo project in Mexico’s state of Baja California Sur following a US$858- million financing, the company reports.

Baja Mining’s 70%-owned company Minera y Metalurgica del Boleo (MMB) has completed a financing deal worth US$858 million consisting of US$823 million in project financing debt facilities and a US$35-million equity cost overrun support facility.

“It’s a big project and it’s a large amount of money,” John Greenslade, president and chief executive, said on a conference call. “It’s a testimony of the quality of the project that we’ve had such a strong team of lenders.”

The copper-cobalt-zinc-manganese project is targeted for copper commissioning in 2012 and Greenslade forecasts production will start in 2013.

The US$823 million in debt facilities, which makes up the total amount of debt financing needed to develop the project, is being provided by: the Export-Import Bank of the United States; Export Development Canada; the Korea Development Bank; and by a group of commercial banks comprised of Barclays Capital, Standard Bank, Standard Chartered Bank, UniCredit Bank and WestLB.

Louis Dreyfus Commodities is providing the US$35-million equity cost-overrun agreement in the form of a letter of credit. (The Louis Dreyfus Commodities Group is one of the world’s leading commodity merchants and processors of agricultural, energy and metal products.)

Vancouver-based Baja Mining holds a 70% interest in the project and is the operator, with a syndicate of Korean industrial companies holding the remainder.

The financing agreements require that Baja Mining hedge 50% of its copper production between 2014 and 2016. “The hedge price will be US$2.40 per lb. , ” Greenslade said. “If we put it in place today, we’d be looking at about US$3 per lb.”

The project is located near tidewater on the east cost of Baja Cali- fornia Sur, adjacent to the town of Santa Rosalia, about 850 km south of San Diego, Calif.

The deposit was mined continuously by underground methods from 1886 until 1972, during which time about 18 million tonnes of ore were treated. Since then, both underground and open-pit mining were carried out sporadically until the copper smelter at Santa Rosalia closed in 1985.

MMB acquired the property in 2001 and has continued exploration and project development ever since.

The Boleo project has a copper-cobalt- zinc-manganese resource consisting of 265 million tonnes of measured and indicated re- sources grading 1.50% copper equivalent (including roughly 85 million tonnes of reserves), with inferred resources of 159 million tonnes grading 1.15% copper equivalent.

A National Instrument 43-101 compliant updated technical report in January 2010 confirmed that Boleo can be developed economically at an after-tax internal rate of return (based on the three-year trailing average for metal prices at such time) of 25.6%, based on 100% equity.

The project has a minimum mine life of 25 years (during which 71 million tonnes of reserves will be exploited).

The net present value has been estimated at US$1.31 billion, using an 8% discount rate, and an average life-of-mine cash cost of negative US29¢ per lb. copper, net of byproduct credits.

At presstime Baja Mining’s shares were 99¢, trading within a 52-week window of 54¢-$1.06. The junior has 165.9 million shares outstanding.