Brazil miners moving toward debt financing for projects

Miners in Brazil are turning to financing solutions based on debt amid difficult conditions in the equity market.

Economists' average expectation for the benchmark interest rate known as the Selic has increased to 11.25% this year from the previous consensus forecast of 10.50%, according to the central bank’s weekly survey of 100 economists, published on Monday.

"Mining companies, along with those in other sectors, actually have limited sources of financing because we have a scenario in Brazil that points to an increase in the interest rate and that harms companies that want to finance themselves via the equity markets," Reginaldo Galhardo, manager of local brokerage Treviso Corretora, told BNamericas.

"Given this scenario, the solution for companies is to finance themselves via debt market transactions or more sophisticated operations with specific suppliers or partners."

Given the challenging landscape in the equity market, companies are advancing with other financing solutions.

The board of gold producer Aura Minerals approved the issue of 500 million reais (US$90mn) in debentures due in 2030 to finance the operations of its Almas project.

Almas is an open pit gold mine located in Tocantins state and is the first greenfield project constructed by Aura.

The proceeds will be raised from Aura's Almas subsidiary and will be used to reinforce cash and the management of Almas' business, the firm said in a statement.

Meanwhile, Brazilian Nickel Limited (BRN), the owner of Piauí Nickel Project, announced a sophisticated financing solution for the development, which also involves debt instruments.

“BRN’s financing strategy [involves] three main sources of funding: (i) a limited recourse project financing, in the form of senior debt; (ii) partnership(s) with other equity investors, either through an investment in the company or joint venture arrangements at the project level; and (iii) a royalty instrument owned by Ecora Resources PLC which gives Ecora the option to invest a further US$62.5mn towards the construction of the full scale project and thereby increase their gross revenue royalty to 4.25% (this will be at the point when plans for the construction of a processing plant with a nameplate capacity of 24,000t or more of nickel per annum are implemented),” the firm said in a statement.

It added that Rothschild & Co has been engaged to act as the company’s exclusive financial advisor in connection with the financing.

Sigma Lithium was also obliged to opt for a debt financing solution recently, with development bank BNDES approving 487mn reais in financing for a lithium processing unit at the Grota do Cirilo project in Minas Gerais state.

The proceeds are coming from the bank’s New Climate Fund and will support the company’s efforts to increase its lithium concentrate output from 270,000t/y to 520,000t/y.