Fostering the Development of Greenfield Mining-related Transport Infrastructure through Project Financing

Abstract

The purpose of this study is to serve as
 a guide on developing Greenfield transport infrastructure
 (rail and port) primarily used to support mining operations
 ('mining-related infrastructure'), through
 Public-Private Partnership (PPP) schemes and on a project
 finance basis. The focus is on key financing issues and
 considerations, as well as recommendations for governments
 and private-sector participants, specifically in the context
 of sub-Saharan Africa and similar regions. Over the past
 decade, the rapid economic growth in newly industrialized
 markets has fueled a strong demand for various commodities
 (such as iron, coal, bauxite and copper), with significant
 impact on their prices. The last ten years have seen an
 unprecedented rise in the price of mineral commodities
 worldwide. From the mid-2000s through the early 2010s, the
 world's largest mining companies embarked in the
 planning of numerous and often very large mining projects to
 satisfy what was seen as an ever growing double digit demand
 for minerals (iron ore, coal, bauxite, copper, etc). A
 number of these mining projects are located in frontier
 countries (e.g. Mongolia, Guinea, Afghanistan, Sierra Leone
 and Mozambique). This report explores the challenges and
 solutions associated with the development of Greenfield
 mining-related transport infrastructure through project
 financing in frontier countries, including as shared-use
 assets. From an ownership and financing structure
 perspective, there are three traditional forms of ownership
 models: public-sector led, mining company-led or third-party
 investment. Given that most frontier host governments simply
 do not have the ability to fund these infrastructure
 projects on a purely public basis (including with the
 assistance of multilateral development banks), this report
 focuses on the latter two ownership arrangements. In terms
 of financing models, the size of such investments often
 rules out corporate financing as a viable option for
 external investors. Thus project financing is the most
 feasible and most adapted form of debt financing for
 Greenfield multi-user/multi-client mining-related
 infrastructure, assuming project bankability can be
 demonstrated to lenders. Lastly, public authorities might
 have to accept that multi-usage demands made to transport
 mining infrastructure operators might have to be initially
 or permanently restricted to secure, first and foremost, the
 delivery of an efficient mining transport system at the
 lowest possible cost to its anchor user/client.