The challenge:

Following the recent achievement of steady-state operations at the DeGrussa Copper-Gold Mine in Western Australia, Sandfire Resources was looking to fully refinance its existing syndicated project finance debt and simplify its banking arrangements. The company had moved to a critical next stage in its corporate life and needed to refinance its earlier debt into a structure more appropriate for the project life.

As part of this, it needed to establish a working capital facility that addressed the somewhat unpredictable timing of its shipments and receipts. The facility also needed to sit alongside the project debt structure on an equal footing.

The solution:

Sandfire Resources worked with its lead bank, ANZ, to establish a $50m working capital facility that featured a ‘Borrowing Base’ against finished product (copper concentrate) inventories at the mine, the port and on the vessel. This ranked alongside the existing project finance debt facility and enabled additional liquidity to be released from the project finance reserve account structures as well as providing lower cost finance to the operation.

As Matthew Fitzgerald, Chief Financial Officer explains “the increased predictability of project cash flows allowed greater certainty around committing to other corporate payments, including a maiden dividend, taxation, exploration and business development, and capital expenditure.”

ANZ bank was the sole funder and provider of the refinanced facility, which was facilitated in partnership with Sandfire Resources through their project finance and trade specialists, alongside valued support from the relationship, credit and technical teams.

Best practice and innovation:

Compared to more conventional working capital facilities that are linked to sales receipts, this facility was designed around inventory stockpiles of highly marketable concentrate and therefore smoothed out the borrowing amount, cash flow and cash flow based covenant compliance impact normally associated with a more ‘lumpy’ sales model.

This structure had not been used before and combined the disciplines of a project finance structured (site visits by the Financier’s technical specialists, inventory monitoring and reporting) with the versatility of a working capital facility and utilising the full value of the company’s inventory. The facility is fully self-liquidating and linked to highly saleable production through associated product marketability testing.

Combining project disciplines with working capital structuring techniques, the company was able to bring in additional flexibility to move onwards with the next phase of life as a listed company, with significant discretion on how to efficiently manage cash flows.

Fitzgerald concludes “indicative of best practice, this deal was all completed against a backdrop of commodity price volatility and general cautious sentiment towards the resources sector so we are even more pleased with the outcome.”