Greenland Minerals in debt talks to fund $800 million plan
The Australian miner says it is in early talks with the Danish government and investors to sell debt to fund an $800 million investment in uranium mining in Greenland.
Posted: Tuesday , 05 Nov 2013
Greenland Minerals & Energy Ltd. said it’s in early talks with the Danish government and institutional investors to sell debt to fund an $800 million investment in uranium mining in Greenland.
The Australian miner, which hired FLSmidth A/S to help with the engineering side of the project, is talking with Denmark’s Export Credit fund, or EKF, and pension funds to help finance the venture, Chief Executive Officer Rod McIllree said in an interview in Copenhagen. Half the initial investment will go toward building a hydro-power plant and a harbor next to the uranium and rare earth mineral mine, McIllree said.
“We can receive some of the money up front, use those contracts to obtain bank finance and get some interest out of it from Danish pension funds about the annuity generating parts like the port, power,” he said. “We’re talking about issuing bonds in a long-term sense if we’re using Danish industry and we get a Danish export credit grant, which is AAA and government backed. We’re quite a way on that and it may fall into place quite easily.”
New loans backed by EKF, which issues state-backed guarantees for exporters and the banks funding foreign sales, soared to 16 billion kroner ($2.9 billion) as of June, up from 3.7 billion kroner in 2010. The Danish government has been helped by record-low borrowing costs for the Nordic country. Its 10-year yield was at about 1.75 percent yesterday, compared with an average of 4.72 percent over the past 20 years. It’s up from a low of about 0.98 percent last year, when Denmark emerged as a haven from Europe’s debt crisis.
Interest in Greenland and the Arctic as a whole as a source of fossil fuels is growing as global warming melts ice once too thick to penetrate for exploration. In May, China was granted observer status by the eight-member Arctic Council, giving the world’s second-largest economy more influence amid an intensifying search for commodities.
The Australian company plans to announce industry partners for both uranium and rare earth mineral extraction next year. Greenland Minerals will aim to fund half the project through long-term contracts with its partners and is looking into selling debt that will be serviced using cash flow from those contracts, McIllree said. The first debt sale will be in “the middle of next year at the earliest,” he said.
“What we’re trying to achieve here is the two partners to provide a guarantee, even though it’s just inferred,” he said. “With two big customers buying all of your product at a certain price, and Denmark on the other side saying, along with its pension funds, it’ll also carry part of the risk, what’s left is almost a risk-free trade for those issuing the bonds as you’ll have three global agents backing it.”
Kvanefjeld in southern Greenland holds uranium and rare earth minerals of “genuine global significance,” Greenland Minerals said last month, after the Arctic island’s parliament voted to end a 25-year ban on extracting uranium.
While uranium is mined in France, Canada, Australia and the U.S., global supply is complicated by “some of the larger uranium mines” being “located in politically unstable areas like Niger” and former Soviet republics in central Asia, McIllree said.
“The Eksport Kredit Fund is generally positive on Greenland mining projects and wants to continue looking into backing them,” spokesman Ole Lindhardt said by phone. “In cases like a uranium project, we’d also need to investigate some corporate social responsibility issues.”
The most scarcely populated nation on the planet is now trying to attract funds to help harness its energy and mineral wealth as interest from China and Australia reignites its campaign to end almost 200 years of Danish colonial rule. Greenland, which gets about half its exports from shrimp, has so far been propped up by about $600 million in annual subsidies from the government in Copenhagen.
Greenland Minerals expects to receive a full license in 2014 from the government in Nuuk. That would allow the company to start construction of the mine in 2015 and begin production by 2017, McIllree said.
Greenland is a self-governing part of the Danish commonwealth, though responsibility for security and foreign policy still lies with the government in Copenhagen, meaning Greenland needs Danish consent to export uranium. Prime Minister Helle Thorning-Schmidt has said Denmark won’t try to block decisions made in Greenland, though the Danish parliament remains divided on the matter.
--Editors: Tasneem Brogger, Jonas Bergman
To contact the reporter on this story: Peter Levring in Copenhagen at email@example.com
©2013 Bloomberg News