Baja Mining wins project financing partner for Boleo copper-cobalt project in Mexico

Baja Mining wins project financing partner for Boleo copper-cobalt project in Mexico

Baja Mining Corp (TSX:BAJ) has entered into a binding Letter of Intent (LOI) with Geneva-based Louis Dreyfus Commodities Metals Suisse SA (‘Louis Dreyfus’), which sets out the terms of three separate agreements which will allow Baja to satisfy certain obligations under its Project Finance Package (PFP) for the Boleo project – Mexico’s largest copper-cobalt deposit.

Boleo currently hosts a measured and indicated resource of 265 million tonnes grading 1.5% copper equivalent, with a further 159 million tonnes of inferred resources grading 1.15% copper equivalent. Baja Mining has a 70% interest in the project, with the remaining 30% held by a consortium of Korean investors.

The Boleo mine plan currently estimates a capital cost of US$889m to build a 3.1Mt pa (million tonnes per annum) operation.

Baja told investors that, alongside its Korean JV partners, it is continuing to make steady progress towards finalizing the PFP for the Boleo project. The PFP is made up of US$740m in senior project debt financing, including a US$50m overrun facility to be provided by certain export credit agencies and a syndicate of commercial banks, a US$50m in subordinated debt provided by the Korean Development Bank and a further US$50m in subordinated debt to be provided by the Korean Consortium on behalf of Baja.

In addition, the JV partners are required to provide a further US$50m in overrun financing, and the remainder of the PFP will be made up the JV partner’s equity contribution.
With today’s deal with Louis Dreyfus, Baja has made strides in satisfying its own equity cost overrun obligations under the PFP.

Under the terms of the LOI Louis Dreyfus will subscribe for US$40m in Baja shares, it will provide a US$35m Letter of Credit, and it has agreed a 10-year off-take agreement, on commercial terms, for 70% of the Boleo project’s annual copper and cobalt production.

The subscription agreement, effectively commits Louis Dreyfus to a US$40m investment in a proposed future financing which will fund part of Baja’s required equity contribution to the Boleo project. Louis Dreyfus’ US$40m investment will form part of a larger equity offering, which is currently being discussed with a syndicate of broker-dealers.

The overrun agreement is essentially a credit facility which, if drawn, will convert into common shares of Baja at a designated price. The deal with Louis Dreyfus, states that if the facility not fully drawn or cancelled, Baja will issued non-transferable warrants for a maximum number of shares, equal to US$10 million divided by 125% of the designated issue price.

The JV Partners through their JV subsidiary, MMB intend to close the PFP and get the next phase of construction underway at Boleo as soon as possible, with discussions underway between MMB’s advisor Endeavour Financial International Corp, the lending groups and Louis Dreyfus.

MMB is targeting copper commissioning at the Boleo Project in 2012.

Back in January, a revised mine plan estimated a capital cost of US$889m, including an 11.6% contingency to build a 3.1 million dry metric tonnes per annum operation that would produce 56,697 tonnes of copper cathode, 1,708 tonnes of cobalt cathode and 25,364 tonnes of zinc sulphate monohydrate per annum for the first six years of the projected 23 year mine life.

Based on the base case of $2.91/lb for copper, $26.85/lb for cobalt and $1,175/tonne for zinc, the project has a NPV of $1.3 billion (8% discount) with an average life of mine cost of negative $0.29/lb for copper, net of zinc and cobalt credits. The post-tax internal rate of return (IRR) is 25.6% on a 100% equity basis.

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