DEVELOPMENT OF A LARGE-SCALE MINE: THE ANTAMINA PROJECT
| Jurisdiction | Derecho Internacional |
(2001)
DEVELOPMENT OF A LARGE-SCALE MINE: THE ANTAMINA PROJECT
Compañía Minera Antamina S.A.
Lima, Peru
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Introduction
The "Investment-Attracting" process in Peruvian mining sector in the nineties is the result of a free-market economy, open to the world. This economic framework achieved social, financial and judicial stability and was characterized by private sector leadership based on the principle of free enterprise.
All this took place in an investment-fostering scenario, driven by privatization. A good example of the success achieved by this process is Antamina, project which is currently the largest mining mega-project being developed in the world.
To understand what Antamina means for Peru, we have to realize that its development is an important step forward for Peru, as it will help to consolidate its position as a major leader in the Latin American mining sector, by being a first-class world mining operation.
A Great Project
Antamina is the largest mining investment in the history of Peru (US$2.3 billion) and beginning 2002, it will increase Peruvian copper and zinc production by 30-50%, as well as a 30% increase in the foreign currency earnings of the country generated by the mining sector.
• At the same time, it would produce a 1.8% increase in national GDP, and
• At the regional level, it would produce a 40% increase in the regional GPD and will promote a new area of development — as large as Belgium — by fostering activities such as tourism, agriculture, and livestock breeding, among others, within the framework of sustainable development, in a region that before was close to development.
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Antamina will increase:
• Peruvian mining exports by 30%
• Peruvian GDP by 1.8%
Will involve:
• Regional infrastructure development
Will facilitate:
• Increased regional development
Antamina's Shareholders
In 1998, upon completion and approval of the Environmental Impact Assessment and Feasibility Study, after a long process, an agreement between the Peruvian Government and Compañía Minera Antamina was signed granting us a Judicíal, Tax, Foreign Exchange and Administrative Stability Agreements which allowed the company to commit to continue with the development and construction of the project.
In July 1998, Teck and Noranda agreed to join the consortium, following the departure of Inmet. In October 1999, an additional new shareholder came on board: Mitsubishi Corp.
CMA's current capital structure is:
• Noranda Inc. 33.75%
• Billiton (Rio Algom Limited) 33.75%
• Teck Corporation 22.5%
• Mitsubishi Corporation 10%
Milestones
A quick review of the most important milestones of the project, shows:
| Privatization Agreement | Sep. 96 |
| Exploration | July 97 |
| Feasibility & EIA Studies | Mar. 98 |
| Noranda / Rio Algom, new Shareholders | July 98 |
| Confirmation of Project Development | Sep. 98 |
| Project Financing | June 99 |
| Mitsubishi, new Shareholder | Oct. 99 |
| Billiton, new shareholder | Nov. 00 |
| Mechanical Completion | Aug. 01 |
| Commissioning /Pre Operative | Aug. 01-Jan. 02 |
| Commencement of Production | Feb. 02 |
Development of the Project
After waiting for more than 40 years to be developed due to unhelpful government policies, ANTAMINA was eventually privatized in 1996.
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Rio Algom and Inmet, both Canadian mining companies, were initially awarded the contract and before executing the corresponding contract, they had already commenced an intense exploration program.
Location
Since the project is located in a remote, inhospitable and geographically difficult region, the level of infrastructure development and other major installations is particularly important.
Antamina is located in the eastern range of the Andes, at 270 kms. to the northeast of Lima, the capital of Peru, and between 4300 to 4700 mts. Above sea level.
Mineable Reserves
In only eleven months, 118 km of diamond drilling were performed, that, compared with the 12 km done by Minero Perú (State own enterprise) in 15 years, and which raised the ore reserves from 120 MM to 500 MM — at a grade of 1.8% (Copper equivalent). Subsequently, the Feasibility Study redesigned the operation from 30 to 70,000 ton/day, thus increasing the required investment by 80%.
Mineable Reserves and Inferred
Resources by Ore Type
Exploration included 376 drill holes totaling 118 km
| mm tons | Cu Eg. % | Cu % | Zn % | Ag g/t | Mo % | |
| Classification | ||||||
| Proven & probable1 | 494.3 | 1.8 | 1.3 | 1.0 | 12 | 0.03 |
| Inferred resource1 | 35.3 | 1.3 | 0.8 | 1.7 | 8 | 0.01 |
| Marginal2 | 46.4 | 0.6 | 0.5 | 0.3 | 6 | 0.03 |
| Total | 576.0 | 1.6 | 1.2 | 1.0 | 12 | 0.03 |
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Financing
Another important aspect is the decision of our shareholders to commit themselves to develop the project before having the required financing in place — and moreover — having the obligation to complete the project before June 2002 and pay to the Government 30% of the non-invested committed amount.
In order to fully appreciate the conditions under which the stakeholders decide to proceed, we should not forget that at that time the world was undergoing one of the worst economic crises in recent memory, and metal prices were at historically low levels. Thus, the ability to close the financing package was far from certain.
Import/export credit agencies from Japan, Germany, Canada and Finland signed a financing agreement for US$680 million, while commercial banks funded US$640 million. It is important to mention that three Peruvian banks are part of this group. Additionally, we have obtained a subordinated credit for US$620 million.
Undoubtedly this financial package shows very clearly the trust on the project, as well as, on Peru.
Finance Structure
| Export / Import agencies | US$ 680' |
| — EDC | Canada |
| — KFW | Alemania |
| — Finvera | Finiandia |
| — Jexim | Japón |
| Commercial banks: | US$ 640' |
| Total | US$ 1,320' |
| Subordinated | US$ 620' |
| US$ 1,940' |
The Senior lenders have appointed a well known engineer firm (Pincock, Allen & Holt) to act as an independent auditor to monitor and audit all the activities of Antamina.
An important condition for closing the financing was the commitment to sell most of the future mine production, for a period of time similar to the maturity of the loans, which is from 10 to 14 years.
In accordance with it, we've entered into long-term frame contracts with different world smelters and refineries, which cover around 80% of the estimated production with the following distributions:
| a) North America | 322,000 tons/year |
| b) Japan and Korea | 442,500 tons/year |
| c) Europe | 480,000 tons/year |
Investment
Up to the end of 2000, and considering all the investments made since the beginning of the project in July `96, we've invested a total of US$1,598 MM.
Year 2001 expected investment with US$583 MM, anticipated. The total project investment is estimated to be US$2.296 Billion.
Investment
| US $ | |
| To 2000 | 1,598' |
| 2001 | 583' |
| 2002 | 115' |
| Total Projected | 2,296' |
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Work Force
One of our greatest challenges has...
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