Bayóvar bidding rules under fire

The bidding procedure outlined for Peru's Bayóvar phosphates project "needs a lot of work," a source from US phosphates and potash company IMC Global (NYSE: IGL) told BNamericas. "We are interested in the deposit, but whether we are interested in the project will depend on how [the auction] negotiations go," said the US-based executive who is involved in assessing Bayóvar. Bayóvar, in northern Peru's Piura department, has estimated mineable reserves of 816Mt, equivalent to 262Mt of rock phosphate at 30% phosphorus content. It is due to go on the block September 24. Potential "reserves" are estimated at 10Bt, according to state promotion agency ProInversión. Companies were invited to pre-qualify in March and have until September 16, two weeks prior to the auction, to do so, according to the current auction schedule. The IMC Global source said the bidding procedure was "still very strange" and needed a lot of work in all areas. In particular, Bayóvar is to be awarded to the company that offers the highest level of production and royalty, something that can only be properly calculated through a feasibility study, he said. "The [adjudication] schedule and format leaves it wide open for a minimally qualified, crazy bidder who hasn't done any work to come in at the last minute," he said. As yet, ProInversión has not come up with a base production or royalty requirement and, under the current schedule, will not do so until two weeks before the auction, said the source. "Hopefully they will change that." The procedures also required bidding companies to submit a development plan for a multi-purpose port, and this was also a problem, said the source. "How do you decide on one [a multi-purpose port], if you don't know what, apart from phosphate rock, you are going to ship?" he asked. BNamericas was unable to contact a spokesperson from ProInversión or state miner Centromin for comment. An initial investment of US$300mn has been estimated for Bayóvar. Construction of a 4.5Mt/y port, in Bayóvar or Sechura Bays, is calculated to cost US$40mn-US$50mn. The IMC Global source said the company had been unable to find out if other companies had pre-qualified for the project although it is known that Brazil's iron ore giant CVRD (NYSE: RIO) is another possible contender. Under the current contract conditions, the auction winner would have to make an initial, as yet unspecified, payment on being awarded the contract. It would then have to start paying royalties from the sooner of either the start of production or from year six after the concession has been awarded. The company would also have to immediately pay an initial US$1mn and then US$500,000/y from year three to the local Community of San Martín Foundation. A two-year option period is provided during which the winner would have to complete a bankable feasibility study with production required to start five years from the signing of the contract. Previous attempts to auction Bayóvar have failed due to local disagreements over land rights, since resolved with the formation of the Community of San Martín Foundation that holds the surface rights to the Bayóvar concessions.