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Nickel in
Africa
by Gordon Feller
Sub-Saharan Africa’s largest project financing
to date has signed, setting a landmark in not only the mining sector and debt
markets, but acting as a pathfinder deal for mega projects in the region.
Madagascar’s US$3.3 billion Ambatovy Nickel Project is of one of the biggest
project financings in the region as well as being one of the largest project
financings in the global mining sector. Ambatovy is located in the central
highlands of Madagascar near Moramanga, around 130km from the capital
Antananarivo. The mine has a projected 27-year life.
The deal - which is expected to reach financial
close in the final quarter - will be a major revenue earner for the island state
which lies 500km off the east coast of southern Africa and creates a stable
supply of metals for Japan and Korea. This deal also stands out as nickel
development involves huge costs and this project reached the signing stage
without involvement from any of the global metals majors. The mine is expected
to start production mid-2010 and reach full production capacity by early 2013.
It will have an estimated annual production capacity of:
60,000 tonnes of nickel
5,600 tonnes of cobalt
190,000 tonnes of ammonium sulphate
Sumitomo and state-owned Korea Resources Corp (Kores)
have each guaranteed to take up to 30,000 tonnes of nickel, with the former
responsible for marketing in Japan and the latter selling to the South Korean
market. Sumitomo, Kores and Sherritt [previously Dynatec Corporation of Canada]
will jointly market nickel to China, Taiwan and other Asian countries. Nickel
production is expected to reach about 10,000 tonnes in 2010, and output is seen
to rise to more than 30,000 tonnes by the end of 2011. Output could reach 60,000
tonnes by the end of 2012.
Nickel is used to make stainless steel, battery
and electronic industry materials, while cobalt is used in aircraft parts and
batteries. Unlike nickel, cobalt is not traded on an exchange. Demand for both
nickel and cobalt has been rising sharply in recent years and industry experts
predict that demand will continue to rise over the coming years. Sherritt
is involved in the production of nickel, cobalt, thermal coal, oil and power,
and has been operating a nickel mine and processing plants in Cuba since 1995.
It has also been operating nickel and cobalt refinery plant in Canada for
decades. This project is the first joint investment between Japan and
South Korea - not only as sponsors but also as international syndicate loan
providers - in the mineral resources sector.
The Ambatovy project obtained
environmental assessment approval in December 2006 as a model case that executes
close environment protection measures. It also received a notification of the
certification from the Madagascar government under Madagascar’s Loisur les
Grands Investissements Miniers - Large Mining Investment Act (LGIM) - in March
2007. The LGIM establishes the legal framework for developing and
operating large-scale resource projects in the country and this certification
provides whole-life stability of tax and legal position of the project.
Milbank Tweed Hadley & McCloy advised the lenders on the deal with Sullivan
& Cromwell acting for the sponsors, led by Stewart Robertson and Christine
Spillane. Robertson, who co-heads S&C’s EMEA projects group in
London, says: “Ambatovy is a landmark African project and the largest ever
greenfield mining project financing. We expect it to serve as a model for other
large-scale natural resource projects in the region.”
Ambatovy will have the significant impact on
worldwide market in terms of stable supply of rare metals and will contribute to
Japan’s policy of securing a stable source of supply. Opportunities to
participate into the nickel/cobalt industry are increasingly rare as resources
exist unevenly and the industry is under oligopoly by majors as the large scale
of investment is normally required to develop the resources. With commodity
prices remaining high tough natural resources deals are continuing to make it
through the system.
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