By Alastair Ford
“Towards the end of last year, there were two things we needed to do”, says Ormonde Mining’s Kerr Anderson. “Get the project permitted, and get the project funded.”
Sounds simple when you say it like that, and indeed Ormonde’s newsflow since that time makes it look fairly simple too.
The mining concession for the company’s Barruecopardo tungsten project in Spain was granted in mid November, to be followed a couple of months later by the signing of a funding deal with Oaktree Capital, a US$90 billion American investment company with offices New York, Los Angeles and London.
Under the terms of the deal, Oaktree will buy into Barruecopardo on a project level as well as stumping up the requisite portion of the debt. So, at one fell swoop Barruecopardo’s funding needs are taken care of and the path to production suddenly opens up.
“These guys like the project and our discussions got to a point where they wanted to put all the equity in and the debt”, says Kerr. And looking at the current state of the wider debt and equity markets, he’s pretty confident the all-in one solution he’s come up with is the best option.
“The thought of trying to do a really large equity raise was pretty challenging. It’s about delivering the project with value”, he says. “This is a good deal. We’ve deliberated a lot.”
The market reaction was muted, however, because the precise details of the deal have not yet been made known. How much of the project Ormonde is giving away and on what terms remains unknown.
But there are good reasons for that. Although a deal has been agreed in principle, the fine detail has yet to be thrashed out. “For Oaktree”, says Kerr, “they want to have the arrangements finalised before we release the details. The documentation is quite extensive.” As it currently stands, Oaktree has been granted “exclusivity” over Barruecopardo, a deal partly cemented by its willingness to provide a US$1.5 million short-term loan on commercial terms to see Ormonde across the line to final financing.
There are a couple of different aspects which require specific attention. There’s agreement relating to the equity in Barruecopardo. And there’s the management agreement. “They are keen that we would manage it”, says Kerr, and the deal makes provision for Ormonde to manage the construction and then the operational side of things in return for a fee. That, says Kerr, will help with corporate overheads too.
But if Oaktree like the project to such an extent that it was willing to put up both equity and debt finance, why didn’t it buy it outright?
Simply, says Kerr, because there is more to Ormonde than just tungsten. There’s the long-standing gold-silver project at La Zarza, and exploration projects right across Salamanca and Zamora provinces.
There’s also Ormonde’s long-standing presence on the ground, good relations with the locals and undeniable familiarity with the project. In this instance Oaktree is after tungsten and returns from tungsten. And it doesn’t need to buy the project outright to get that.
What it will do though, is allow for a longer-term approach to the mining of Barruecopardo, after the initial mineralisation as defined in the mine plan is mined out.
But first thing’s first. The plan now is to close off the financing and get into construction as soon as possible. Kerr says that it’ll take 14 months to build and commission the project, so assuming that the debt and equity deal is sown up in early April, as currently envisaged, that could allow for production to commence late next year or sometime in early 2017.
At that stage that most precious of commodities will at long last start coming Ormonde’s way – cash flow. “The first thing to do with that will be to pay back the debt”, says Kerr. But after that, there is at least the possibility of a return to shareholders.
Much will depend on the tungsten price, of course. It’s been weaker of late, but Kerr is reasonably confidence that renewed strength is on the way. “In the next two-to-three years I expect it to trade at between US$300 and US$400”, he says. “I think that where we’re at now below US$300 is temporary. I’m basing that on supply. The fundamentals haven’t changed.”
The strengthening dollar may not help in terms of pricing, but it does have other benefits. “Our revenues will be in dollars but our operating costs will be in Euros”, says Kerr, “so that’s good. I like tungsten as a commodity.”
And it’s pretty clear that Oaktree capital like it too.