Roy Hill Nears A$7 Billion Funding Deal Even as Ore Price Slides

Roy Hill Holdings Pty, controlled by Asia’s richest woman Gina Rinehart, said talks are advanced to obtain A$7 billion ($6.5 billion) in funding for its Australian iron ore project, even as the price of the material this week fell the most in four years.

“The debt funding agreements with various export credit agencies and commercial banks are well-progressed,” Roy Hill Chief Executive Officer Barry Fitzgerald said at a conference in Perth today. The slide in price hasn’t affected financing talks, given Roy Hill’s long-term forecast for iron ore, he said.

Fitzgerald wasn’t specific on that forecast, except to say it’s in line with market views. Iron ore is expected to drop to $96.53 a metric ton in 2017 from a spot level of 104.90 a ton, according to a median forecast compiled by Bloomberg.

Australia’s four largest banks were expected to join the bidding to finance the mine, with about 16 to 20 banks involved in total, three people familiar with the matter said in November. The debt was expected to have an average maturity of between 10 and 11 years, they said.

Roy Hill is negotiating with banks to build the mine in Western Australia’s Pilbara region even as iron ore extended its decline into a bear market last week on concern that demand in China, the largest buyer, may slow. Ore with 62 percent content delivered to Tianjin has fallen to its lowest level since October 2012 after an 8.3 percent drop, according to latest data from The Steel Index Ltd. on March 10.

Ore Price

“The reality is that our long run iron ore price is based on the consensus and that’s where the financial model sits,” Fitzgerald said. “I haven’t seen a big movement in the long run iron ore forecast in the last six years.”

Roy Hill is seeking part of its financing from export credit agencies, including Japan Bank for International Cooperation, Export-Import Bank of Korea, Nippon Export & Investment Insurance, Export-Import Bank of the United States and Korea Trade Insurance Corp., the company said in 2012. The board of U.S. Ex-Im on Nov. 14 gave preliminary approval for $694 million in financing for the project.

Japanese trading house Marubeni Corp. owns 15 percent of the Roy Hill project, which is due to begin mining next year and annually produce 55 million tons. South Korean steelmaker Posco owns 12.5 percent and China Steel Corp. 2.5 percent. Rinehart’s Hancock Prospecting Pty owns the rest, according to the project’s website.

Before it's here, it's on the Bloomberg Terminal.