I’m going to have to rename Friday “Gina leak day”. For the third week in succession that’s precisely what we have at her newsletter, the AFR:
ANZ Banking Group has provided up to $US1 billion ($1.09 billion) in bridging finance for Gina Rinehart’s $10 billion Roy Hill iron ore project in Western Australia, reducing the pressure on the billionaire to fund construction with her own money.
The bridging facility was agreed to in recent months as part of efforts by Mrs Rinehart’s private company, Hancock Prospecting, to secure $4 billion in debt for Roy Hill from export credit agencies. These negotiations have dragged on too.
Hancock wants to raise an additional $3 billion or so in debt from commercial banks for Roy Hill, making it the biggest mining project finance deal in history. ANZ’s bridging finance is viewed as an audacious bid by the bank to win as much of the deal as possible.
“It’s a pretty gutsy play by ANZ because if the funding doesn’t emerge, their only collateral will be a partially built project,” said one source about the funding.
“That’s risky, right. That’s not even project financing. There’s huge aggression to come in on that commercial tranche.”
A bank spokeswoman would not comment on customer matters. Roy Hill spokesman Darryl Hockey said Hancock’s equity partners “continued to provide sufficient funds to allow us to progress the project”.
I hope there’s a guarantee in there somewhere. I will note in passing that Roy Hill will be entering an iron ore market during an historic ramp of supply that will push the balance so far out of whack that price carnage is the only imaginable result:
In my view, Goldman has the better figures but that’s really splitting hairs as you can see. So far as I can tell, neither of these forecasts include Roy Hill output (which will be 55 million tonnes). But both also assume that the majority of Indian supply remains offline. For perspective, understand that each of these forecasts represents an oversupply of some 20% of the seaborne market.
The bottom line is that within a year the great deluge is enormous and iron ore will pretty obviously be returning to its intuitive place as dirt for sale. That’s not to say Roy Hill won’t be profitable. Maybe even highly so. But not everyone will be.
This one is a definite case of sit back, relax and pass the popcorn!
