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Rinehart Iron Ore Mine to Complete A$7 Billion Debt End-2013

Roy Hill Holdings Pty, Australian billionaire Gina Rinehart’s unit that’s seeking to raise A$7 billion ($7.3 billion) in debt to build an iron ore mine, said it expects to complete funding by the end of the year.

The funding will come from export credit agencies and commercial banks, Barry Fitzgerald, chief executive officer at Roy Hill, said today in an interview in Perth. The company is also open to selling more equity stakes, he reiterated.

“There is an assessment and a willingness by the ECAs to lend money for projects such as this,” he said. “We’ll then seek the remainder of funds from the commercials.”

Rinehart, Asia’s richest woman, plans to build the mine in Western Australia’s Pilbara region at a time of declining price forecasts. Rio Tinto Group, the world’s second-biggest mining company, said yesterday it expects new iron ore supplies and slower growth in steel demand to weigh on prices of the raw material during the second half of the year. The Roy Hill mine is set to begin producing in late 2015.

“This project is being assessed against the long-run price of iron ore price, not the short-term,” said Fitzgerald. “The funding period is quite long and the mine life is quite long as well. We’re talking to all these institutions, basing the project on a long-run model.”

‘Debt Milestone’

Roy Hill’s parent, Hancock Prospecting Pty, met with export credit agencies in December. It plans to reach a “debt milestone” by mid-2013 and then complete funding at the end of the year, Fitzgerald said.

“We see a key role for an independent producer of quality iron ore in the market place,” Fitzgerald said.

Roy Hill contracted about 50 percent of annual supply on purchase agreements, including with its equity partners, and will seek more such accords, he said. The company expects credit agencies to lend both directly and offer guarantees, with ratios of covered and uncovered debt yet to be finalized, he said.

Iron ore prices may average $120 a metric ton this year, Mark Lyons, Citigroup Inc.’s head of iron ore and steel trading, said yesterday at a conference in Perth. Prices peaked at $158.90 a ton on Feb. 20, the highest in 15 months.

The credit agencies in talks with Roy Hill are Japan Bank for International Cooperation, Export-Import Bank of Korea, Nippon Export and Investment Insurance, Export-Import Bank of United States and the Korea Trade Insurance Corp., the company said in December.

China Purchase

Hancock has signed a purchase agreement with Chinese steel mill Shanxi Zhongyang Iron & Steel Co., with production expected to start in mid-2015, according to a Nov. 29 e-mailed statement. Construction of the mine, located in Western Australia’s Pilbara region, includes a railroad and a two-berth export facility in Port Hedland, the world’s biggest bulk export terminal.

Hancock had studied Fortescue Metals Group Ltd. (FMG)’s plan to sell stakes in its rail and port assets and concluded it would rather seek to control its own assets, Fitzgerald said. Fortescue, Australia’s third-biggest iron ore producer, owns assets in the vicinity of Roy Hill.

Hancock, which owns 70 percent of the mine, plans to ship 55 million tons annually from Roy Hill. South Korea’s Posco and STX Corp., Japan’s Marubeni Corp. (8002) and Taiwan’s China Steel Corp. (2002) own the remaining 30 percent.

BNP Paribas SA and National Australia Bank Ltd. are advising on the debt funding package, Hancock said in December.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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