LatinFinance - September/October 2013 - 38

infrastructure demands, says Zarama.
“Colombian banks are starting to
look at well-structured project finance
transactions, with solid sponsors,” he says.
“The system is getting increasingly strong:
it’s solid, and large.” LF

BEST MINING FINANCING

MARACÁS
VANADIUM
PIECING IT TOGETHER: A worker
solders part of the Bicentenario oil
pipeline, the construction of which
was financed through Colombia’s
largest-ever domestic loan

“Because the local banks don’t need
to deal with exchange risk, and because
they are so familiar with the actors in the
Colombian market, we were able to finance
very quickly with them,” he says. “With
international banks it may have taken a little
longer.”
The Bicentenario pipeline will transport
up to 600 million barrels of oil a day from
the Llanos Orientales region to the port of
Covenas on the Caribbean coast. The loan
raises money for phase one, which runs
from Araguaney to Banadia. The company
is likely to finance the second phase in
2015, once the project is further advanced,
cost projections are refined, and an
environmental impact study completed.
A wish to tap international investors to
fund the second stage further complicated
the structuring of the 2012 loan. The
legal documentation refers to a common
security package, meaning the same assets
can be used to finance the second part of
construction.
“The big challenge was to make the
financing compatible with a future
financing,” says Zarama. “We were very
careful in structuring this so that the first
transaction would be perfectly compatible
with a future deal, on both the legal and the
financial sides.”
The company is likely to turn to the
international debt market to cover the
second phase, he says. Other options are
still on the table, but it is likely to be difficult
to finance locally given concentration limits
at local banks and bond investors.
Still, greater participation by local
investors, particularly in deals without
construction risk, could go some way
towards meeting Colombia’s extensive

38 LATINFINANCE.COM - September/October 2013

Sponsor Largo
Resources employed a
novel structure when it
financed construction
of a production facility
for a mineral which is
equally unusual in Latin
America
Largo Resources’ Maracás Vanadium
project financing in Bahia, Brazil,
was notable for having introduced a
guaranteed, non-recourse loan structure to
the marketplace.
The deal, financed by Brazilian state
development bank, BNDES, helps pave the
way for further non-recourse transactions
in the country. That point — in addition to its
success despite Largo Resources’ status as
a junior sponsor with no local relationship
history and in the face of the challenges
posed by the lack of a forward price for
vanadium — marked the transaction out as
Best Mining Financing.
Those factors also gave the deal an
edge over Trafigura Mexico’s $380
million syndicated loan signed in March
2013, which refinanced the region’s first
uncommitted borrowing base marketed to
Latin banks.
The Maracás Vanadium project
financing’s eight-year loan amortizes after
a two-year grace period, and finances
construction of a vanadium production
facility.
The transaction dates back to April
2011, when a private placement brought in
$118 million-equivalent of equity capital.
The loan, finalized in June 2012, took
months to come together as the lender and
guarantors familiarized themselves with

the commodity as well as with the project
itself.
The 333 million real ($169 million)
term loan from BNDES is guaranteed by
Banco Votorantim, Bradesco BBI and Itaú
BBA. Switzerland-based commodities
firm Glencore International has a six-year
agreement to buy the mine’s full output of
vanadium — used in steel production — for
six years.
The loan comprises a 173 million real
portion, which is dollar-indexed and
pays a weighted average interest rate of
5.85%, and a 160 million real non-indexed
portion. The project pays a fixed 7.3% on
around 50 million reais of the non-indexed
component, and 175 basis points over
BNDES’s long-term interest rate index, the
TJLP, for the remaining 110 million reais.
Mark Brennan, Largo Resources president
and chief executive, says the deal was
financially compelling. “We considered
straight bank debt, but having the BNDES
meant a far cheaper source of capital,
so I guess we had comingled streams of
approaches. But we felt at the end of the
day this was the best structure for us,” he
says.
The plant is due to begin production
by early 2014, and is expected to produce
at a lower cost than others. China, Russia
and South Africa produce the bulk of the
world’s vanadium.
The local community, and state and
federal government have been supportive
of the project, says Brennan, adding that
the unemployment rate in the town of
about 25,000 people is 60%.
Already the firm is considering
expanding the project. Brennan says he
hopes BNDES and commercial banks will

INTO PLACE: Three Brazilian lenders guaranteed a loan from BNDES
for the Maracás Vanadium plant,
bringing down the cost of funding
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